Since March 2020, the S&P 500 has delivered a total return of 120%. But one standout stock has nearly doubled the market - over the past five years, Ralph Lauren has surged 211% to $231.35 per share. Its momentum hasn’t stopped as it’s also gained 17.1% in the last six months thanks to its solid quarterly results, beating the S&P by 16.6%.

Is there a buying opportunity in Ralph Lauren, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

We’re glad investors have benefited from the price increase, but we don't have much confidence in Ralph Lauren. Here are three reasons why we avoid RL and a stock we'd rather own.

Why Is Ralph Lauren Not Exciting?

Originally founded as a necktie company, Ralph Lauren (NYSE:RL) is an iconic American fashion brand known for its classic and sophisticated style.

1. Weak Constant Currency Growth Points to Soft Demand

We can better understand Apparel and Accessories companies by analyzing their constant currency revenue. This metric excludes currency movements, which are outside of Ralph Lauren’s control and are not indicative of underlying demand.

Over the last two years, Ralph Lauren’s constant currency revenue averaged 4.4% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Ralph Lauren’s revenue to rise by 4.1%, close to its 4% annualized growth for the past two years. This projection doesn't excite us and suggests its newer products and services will not lead to better top-line performance yet.

3. Cash Flow Margin Set to Decline

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the next year, analysts predict Ralph Lauren’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 15.2% for the last 12 months will decrease to 11.4%.

Final Judgment

Ralph Lauren’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 17.8× forward price-to-earnings (or $231.35 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Ralph Lauren

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.