Ralph Lauren Corp Class A (RL)

Conclusion

Ralph Lauren designs, markets and distributes apparel, footwear, accessories, home products and fragrances under brands such as Polo Ralph Lauren and Lauren Ralph Lauren, selling through department stores, specialty stores and its own direct channels. At a share price of 398.52 USD, the market capitalisation is 14.83 billion USD.

The verdict is undervalued. Today's multiples sit below their own ten-year medians: the price-to-earnings ratio is 13.84 against a median of 17.45 (a premium of -20.7%), and EV/EBITDA is 9.87 against 13.84 (-28.7%). The discounted cash flow gives 556.79 USD per share at a discount rate of 11.41%. The fair value band runs from 423.72 to 635.58 USD, with a midpoint of 529.65 USD and a margin of safety of 32.9%. The reverse DCF implies growth of 3.67% a year, against revenue growth of 13.02% a year over five years and free cash flow per share growth of 26.37% a year over the same period.

What holds the case up is the return on capital: ROIC of 28.37% against a WACC of 10.15%, and free cash flow conversion of 121.45% on a trailing basis. What could break it is the long-run record. Revenue compounded at only 0.92% over ten years, and the price-to-book ratio of 5.43 is well above its median of 4.02 (a premium of 35.1%).

Financial health

Financial strength is green, held up by all four of its assessed measures: a current ratio of 1.97, net debt of 0.72 times EBITDA, interest coverage of 26.26 and an Altman Z-score of 5.37. The quick ratio is 1.25 and debt to equity is 1.09. The Altman Z-score places the company in the safe zone, although that model was designed for manufacturers and the company, while classed as apparel manufacturing, is a brand owner that also runs retail. Insolvency risk is low, about 0.3% by the estimate of the Ohlson model over one to two years, based on statements to 31 March 2026.

Earnings quality

Earnings quality is green, supported by a Piotroski score of 8 out of 9 and a Beneish M-score of -2.55, which is a reading unlikely to indicate manipulation. Free cash flow conversion is 121.45% on a trailing basis and 98.82% over five years. The accrual ratio is -0.0316, which is a favourable sign. Stock-based compensation is 1.33% of revenue, and free cash flow after it is 1.19 billion USD. The share count has fallen at a compound rate of 3.25% a year over five years, which points to buybacks. The company beat earnings estimates in all eight of the last quarters, by an average of 8.57%. Analysts raised the current-year estimate by 1.7% over 90 days, with six upward revisions and none downward in the last 30 days.

Profitability

Profitability is green. The gross margin is 71.83%, against a ten-year median of 64.84%. The operating margin is 16.00%, against a median of 9.91%, and the net margin is 12.56%, against a median of 7.47%. ROIC is 28.37% against a WACC of 10.15%, and the ROIC minus WACC value of 18.22% is marked as creating value. Return on equity is 39.27%, but the DuPont split shows that leverage contributes: a net margin of 11.6%, an asset turnover of 1.26 and an equity multiplier of 2.27. Most of the return therefore comes from margins and capital efficiency rather than from debt. The five-year median ROIC is 19.41%, so the current level is above its recent norm.

Growth

Growth is green on the strength of revenue and earnings, although revenue consistency is only neutral. Revenue grew at a compound rate of 7.99% over three years, 13.02% over five years and 0.92% over ten. Earnings per share compounded at 25.87% over three years and 12.60% over ten. Free cash flow per share grew at 62.24% over three years, 26.37% over five and 5.73% over ten. Revenue rose in six of the last ten years. Next year's earnings estimate implies growth of 10.32%.

Valuation

Valuation is green. Against their ten-year medians, the price-to-earnings ratio is 13.84 against 17.45 (premium of -20.7%), EV/EBITDA is 9.87 against 13.84 (-28.7%), price to free cash flow is 11.39 against 24.37 (-53.2%) and price to sales is 1.74 against 1.87 (-7.0%). Price to book is 5.43 against 4.02 (+35.1%). The discounted cash flow gives 556.79 USD per share at a discount rate of 11.41%, and the terminal value accounts for 48.1% of it. The fair value from historical multiples is 502.52 USD. The fair value band runs from 423.72 to 635.58 USD, and the margin of safety is 32.9% at a price of 398.52 USD. These figures are an order-of-magnitude estimate built on fixed assumptions, not a price target. The reverse DCF implies growth of 3.67%, against five-year revenue growth of 13.02%. The dividend yield is 1.52%, with a forward yield of 1.06% and a payout of 17.27% of free cash flow.

Risks

The main risk is that growth stays near its long-run rate. Ten-year revenue growth of 0.92% a year, and growth in only six of ten years, suggests the recent rise may not last. The price-to-book ratio of 5.43 leaves less room for error if returns on equity fall back. Leverage is moderate but not negligible: debt to equity of 1.09 and an equity multiplier of 2.27 would magnify any fall in earnings. The DCF rests on a terminal growth rate of 2.5% and a discount rate of 11.41%, so small changes in either would shift the value considerably. The company does not report its interest expense, so the interest coverage figure cannot be checked against it. This analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and the mix between brands, regions and channels cannot be assessed here.