I invested in Coach, now Tapestry (NYSE: TPR) in 2016. The company seemed like a solid value play with good growth potential. I liked the direction they were going. At the same time Coach made a $10 million deal with Selena Gomez to become the face of the brand. I thought that was an excellent move because at the time Gomez had 104 million followers on Instagram (now she has 255 million). It was a much-needed deal for a company that seemed to have lost its Je ne sais quoi, or “it factor” that gives life to a luxury brand. You know that “thing” that creates an emotional response and connection with a brand making you want to pay full price for their product instead of buying a discounted version on Walmart.

Although the company seems to have been making some strides the pandemic changed all that and paused everything. I bought TPR again last year as a solid rebound play and that worked out well as the company has recovered nicely. As I review TPR today I am extremely optimistic and believe there could be a growth storm brewing. The company is still undervalued from its Forward P/E and after patiently waiting I could realize massive gains.

The stock has been dead money for almost a decade, I see that changing.

You can find the most recent Q4 earnings report for TPR here and the presentation here The numbers indicate the company is very healthy and growing. 117% revenue growth for Coach, 95% revenue growth for Kate Spade, and 146% revenue growth for Stuart Weitzman. Coach provides TPR with over 70% of its revenue so they are the main driver of TPR’s profits. The fact Kate Spade and Stuart Weitzman are doing well is a nice bonus for the company as a whole.

#1 Digital growth and engagement is key

The company said its online sales rose 35% from a year earlier. This was mainly driven by Coach, which drove over 55% of the digital growth. Coach is executing on their social media presence and e-Commerce channels in a big way. Coach has 5.4 million followers on Instagram which is surprisingly more than Revolve (NYSE: RVLV), a pure internet retail play. They have several TikTok campaigns which are rapidly creating buzz and new customers. Female Gen Zers and millennials are driving the growth and revitalizing of this 80-year old company.

I am extremely bullish on e-Commerce, specifically social media marketing. This is the future of the fashion industry. Digital growth has better margins than brick-and-mortar growth. If Tapestry can continue to execute on its digital growth, it will see more customers, maintain high margins and increase its brand integrity. When listening to interviews from the CEO of Tapestry, Joanne Crevoiserat, I am hearing a lot of the same verbiage that I hear from another company I am bullish on, Revolve. This is absolute music to my ears. Even just recently I viewed TPR as simply a recovery play that would get a nice boost as the pandemic eased up. Now I see TPR more like a true growth stock disguised as a value play.

#2 Brick-and-Mortar still matters and Tapestry is innovating their stores

Last year Coach opened its first digitally immersive store in Shanghai China, the IAPM mall. These are stores that use digital interactions leveraging virtual reality (VR) and augmented reality (AR). This is all connected to their Acceleration Program for Profitability which they announced last year. Tapestry is focused on delivering on its omnichannel and making a better experience for the consumer. From my viewpoint Tapestry’s strategy is a mix between Apple and Starbucks and so far it looks like it is working. Create appealing products, deliver a seamless consumer experience physically and digitally, strengthen the brand by making consumers care about them again.

#3 Expand in China

Sales grew over 60% in China. 62% of its revenue comes from North America whereas 19% from China. I eventually see the makeup of revenue 50% North America, 25% China, 18% other Asian countries, and 7% the rest of the world. For Tapestry to grow it will need to continue to penetrate the China market. China has an enormous middle-class population and Tapestry’s products are geared toward them. The sweet spot of a luxury handbag for someone in the middle class is about $400-600. Not $2,000-4,000. I have confidence they will carve their lane in the middle-class luxury demographic and who knows, in the future, they may have enough brand strength to compete with Louis Vuitton, Dior, or Prada.

#4 Simply Execute.

Victor Luis was the CEO from 2014 to 2019 and he failed to restore the brand. Jide Zeitlin resigned after 1 year due to personal misconduct allegations. That entire situation was odd, to say the least. Zeitlin, once nominated by Barack Obama to be a UN Ambassador was accomplished but had no real fashion background. Regardless, they seem to have hit a homerun with Crevoiserat, the CEO since October 2020. With stable leadership hopefully, they can take advantage of the talent they already have. Stuart Vevers has been the creative director at Coach since 2013. From most reputable people covering fashion and style, Vevers is a savant. He is very talented however it is hard for his work to shine if management cannot execute. Just like a master chef will suffer if given bad ingredients or incompetent staff. It seems they have figured it out. The truth is a lot of fashion retailers have actual plans in place towards profitability and shifting digitally. It’s really about executing on that strategic vision. That’s on management.

When you put a cake in the oven, there is no guarantee it will come out fully baked. A lot of things can go wrong. I view Coach as being many failed cakes the past decade. A lot of “almost there” and “close” but not complete. I think whatever is in the oven right now though, I think they got it right this time. I bought more shares of TPR recently, even with the stock being up significantly from last year. Despite the 1-year gain, the stock has been stagnant the past five years and lagging behind its peers.

Coach has been performing well in 2021. They brought in Jennifer Lopez as the new face of the brand. The Coach Pillow Tabby is trending on TikTok. The fashion world is believing in Coach again. Female Gen Zers and millennials are spending money on Coach handbags again in a significant way. Despite this, the stock is still undervalued. I don’t believe Wall Street has fully caught on to this story as the cake is still baking. When the story changes from simply a recovery open to a high-performing transformative global technology company, the stock will reach all-time highs.