Should Investors Buy Ralph Lauren Stock at a Premium P/E Ratio?

Ralph Lauren Corporation RL is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 15.45X, which positions it at a premium compared with the industry’s average of 10.29X. The valuation suggests that Ralph Lauren is overvalued.

RL P/E Ratio (Forward 12 Months)

The stock’s rapid ascent might have contributed to its elevated P/E multiple. Shares of Ralph Lauren have gained 31.4% in the past year against the industry’s decline of 18.4%. The S&P 500 has risen 7% during the same time frame.

RL Stock's One Year Price Performance

Such a premium valuation often signals high investor expectations for growth. While this may concern some value-focused investors, it is essential to consider whether the fundamentals justify the price. Now the question arises, is Ralph Lauren a buy, hold or sell at its current valuation?

RL’s Strategic Transformation Fuels Stock Momentum

Ralph Lauren is undergoing a significant transformation that is positively influencing its stock performance. It is executing its long-term strategy with precision across geographies, channels and product categories, driving strong brand and product momentum. Through expanded assortments, innovative product launches and optimized distribution, the company is well-positioned for sustained growth.

Premiumization and brand elevation are cornerstones of Ralph Lauren’s momentum. This strategic focus has led to growing demand across both core and emerging categories. Meanwhile, investments in digital transformation and direct-to-consumer (DTC) initiatives have strengthened the company’s market presence, boosting customer engagement and fueling higher-margin sales.

Tailwinds Behind RL Stock’s Momentum

Ralph Lauren is making notable progress under its Next Great Chapter: Accelerate plan, which aims to streamline operations, upgrade technology and enhance the customer experience. The company is on track to exceed its sales and profit targets, reflecting the effectiveness of this strategy.

A key pillar of Ralph Lauren’s growth is its advancing digital and omnichannel ecosystem. Investments in mobile, online shopping and fulfillment services are paying off. In the third quarter of fiscal 2025, the company added nearly two million new customers to its DTC business, with much of the growth driven by younger, high-value consumers who are less price-sensitive, underscoring the brand’s growing appeal among the next generation.

Ralph Lauren’s social media presence continues to expand across platforms like TikTok, Threads, Instagram, Line and Douyin. The brand’s emphasis on digital storytelling and personalized customer experiences has deepened customer engagement globally. Leveraging data analytics and AI, the company is improving customer insights, loyalty and conversion rates.

RL Provides Optimistic Outlook for 2025

Driven by positive factors such as brand elevation, strong consumer demand and disciplined execution, the company now expects annual revenue growth to exceed initial projections. Operating margins are also set to expand, supported by higher gross margins and improved cost efficiencies.

For fiscal 2025, the company expects revenue growth (at cc) of 6-7% year over year, compared with the prior estimate of 3-4% growth. Operating margin is likely to expand around 120-160 bps in cc on higher gross margins of about 130 to 170 bps.

For the fiscal fourth quarter, management anticipates revenues to grow nearly 6-7% on a cc basis. Operating margin is expected to expand around 120-140 bps in cc, driven by gross margin expansion of 80-120 bps and slight operating expense leverage. Wholesale is projected to continue its positive trajectory, with North America sell-in aligning more closely with sell-out, and Europe wholesale receipts shifting to the second half of fiscal 2025.

Are Headwinds Enough to Derail RL’s Momentum?

While Ralph Lauren continues to build strong operational and brand momentum, its extensive international footprint also makes it susceptible to currency volatility. The strengthening U.S. dollar has emerged as a notable headwind, pressuring revenues and profitability.

For fiscal 2025, foreign exchange fluctuations are expected to negatively impact revenues by 100 to 150 bps. The effect is even more pronounced in the fiscal fourth quarter, where revenues are projected to be reduced by approximately 300 bps due to adverse currency movements.

Ralph Lauren continues to navigate a challenging macroeconomic landscape, grappling with inflationary pressures, shifting consumer spending behaviors, supply chain disruptions and ongoing foreign currency volatility. These factors have contributed to higher operating expenses during the third quarter of fiscal 2025. Looking ahead, the company plans to moderate its marketing investments in the second half of the fiscal year, particularly in the fourth quarter.

RL’s Investment Rationale

Ralph Lauren remains a compelling investment, driven by its differentiated product offerings, strong brand positioning and expansion strategy. The company’s emphasis on brand elevation and strategic investments has driven increased consumer demand across various channels. While the stock trades at a premium, its solid execution and robust financial outlook justify investor confidence.

However, the strengthening U.S. dollar presents a notable headwind, creating pressure on both revenues and profitability due to Ralph Lauren’s broad international exposure. Current investors should retain their positions in RL stock, while new investors might wait for a more favorable entry point. Ralph Lauren currently carries a Zacks Rank #3 (Hold).

Key Picks

We have highlighted three better-ranked stocks, namely, Under Armour UAA, G-III Apparel Group, Ltd. GIII and Duluth Holdings DLTH.

Under Armour is one of the leading designers, marketers and distributors of authentic athletic footwear, apparel and accessories for a wide variety of sports and fitness activities in the United States and internationally. It has a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for UAA’s fiscal 2024 sales and earnings indicates declines of 9.8% and 44.4%, respectively, from the year-ago reported figures. Under Armour delivered an earnings surprise of 98.6% in the trailing four quarters, on average.

G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It carries a Zacks Rank #2 at present.

The Zacks Consensus Estimate for GIII’s fiscal 2025 earnings and revenues implies declines of 4.5% and 1.2%, respectively, from the year-ago actuals. GIII delivered a trailing four-quarter average earnings surprise of 117.8%.

Duluth Holdings, a casual wear, workwear and accessories dealer, currently carries a Zacks Rank #2. Duluth Holdings has a trailing four-quarter earnings surprise of 37.2%, on average. 

The Zacks Consensus Estimate for DLTH’s current financial-year EPS indicates growth of 5.6% from the year-ago figure.

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This article originally published on Zacks Investment Research (zacks.com).

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