Ralph Lauren (NYSE: RL) Approaching Critical Technical Setup

Shares of high street fashion retailer Ralph Lauren (NYSE: RL) are approaching a key point in their current rally. Having run up more than 120% in the past twelve months, the stock is starting to touch a strong resistance level set by its previous June 2018 highs. 

While investors might be wary of the current rally running out of steam, hitting upside resistance is a good thing as it means the stock is trending the right way and the company is perceived to be doing well. And even if some weakness creeps into shares in the coming sessions, there are enough fundamental factors to underpin the technical setup and have Ralph Lauren shares at higher highs in the coming weeks. 

They’re certainly among the better performing of the major fashion retailers in recent months, many of whom looked to be at death’s door at the onset of the COVID pandemic. But with the vaccine rollout continuing to gather pace and economies inching towards full reopened status, Wall Street has been quick to pick out its winners. Even with the reopening play up and running since the last quarter of 2020, there’s still plenty of upside to tempt investors on the sidelines to get involved. Only last month UBS were out with a Top Buys list that centered on reopening focused stocks that they felt still had room to run. Alongside the likes of top performer Nike (NYSE: NKE) was Ralph Lauren. 

Fresh Upgrades

Then earlier this week, Cowen upped their rating on Ralph Lauren stock from Perform to Outperform while also boosting their price target on the shares by almost 40% as they moved it up to $152. This suggested upside of 10% would put shares well above 2018’s levels and have them back trading at prices not seen since 2015. Analyst John Kernan thinks the consensus for the company’s earnings in the coming years might be too far on the conservative side and there’s the potential for upside surprises. With the trend towards digital showing no sign of slowing down, Ralph Lauren is in a good position to continue capturing market share as shoppers move, and stay, online, while also maintaining its global reach which he thinks has often gone under noticed. On top of these factors, $200m in spending cuts will enhance the balance sheet while maximizing operating leverage.  

It looks like the smart money has been building positions in Ralph Lauren stock for some time now. Hedge funds and institutional investors hold more than 60% of all outstanding shares and recent quarters have seen a number of substantial increases as well as new positions opened. Federated Hermes raised its stake in Ralph Lauren by 817% in Q4 of last year while NN Investment Partners opened up a new position in Q1. These signals usually suggest there’s solid long-term value to be had and should be of particular interest to investors considering a new position themselves. 

Impressive Momentum

Even lackluster earnings from back in February couldn’t dampen the bid. Both EPS and revenue came in below where analysts were expecting but investors were happy to look beyond the COVID-related hit and focus instead on the burgeoning longer-term potential that looks set to really hit its stride over the summer. 

So for those of us considering getting involved, there are several fundamental factors to consider as we start watching the ticker tape a bit closer. The bear camp was pretty adamant about shares not getting above $145 back in 2018 so that will be the first major test this time. We’re only 7% away from that right now and it’s not inconceivable that Ralph Lauren stock will be dipping the toe in the water above $140 by the end of this week. 

Even if sellers are seen again and the stock turns back from the mid $140s, you’d have to be thinking that any near term weakness is a buying opportunity. While COVID continues to wreak havoc in places like India, it’s on the retreat in the US, Europe and much of Asia. Short of that changing, there are just too many good things going for Ralph Lauren shares right now to suddenly fall out of favor with Wall Street and investors.