Ralph Lauren Corp. (NYSE: RL) stock is in a buy range after its first pullback since gapping up almost 17% following better-than-expected fiscal third-quarter results.

The clothing maker, whose iconic logo is the polo pony and rider, has galloped  29.41% higher in the past month and is up 44.28% in the past three months.

Apparel Stocks Becoming Fashionable

As a group, apparel stocks have risen sharply over the past six months, with Ralph Lauren being one of the top performers. Apparel stocks fall into the category of consumer discretionary. However, despite being considered discretionary, clothing stocks often show resilience, even during weaker economic and market cycles, as consumers replace items or spruce up their wardrobe to keep up with trends.

The Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY) has been dominated by fast-moving growth names like Amazon Inc. (NASDAQ: AMZN) and Tesla Inc. (NASDAQ: TSLA), neither of which are dividend payers. As a result, the sector’s yield is just 0.8%. 

However, the Ralph Lauren dividend yield is 1.61%, giving it an edge within its sector for investors seeking income.

Here are five reasons why Ralph Lauren stock is one to watch. 

1. Bullish chart action: The Ralph Lauren chart shows a breakaway gap on February 8, as the stock cleared a six-week consolidation with a buy point above $148.03. 
Trading volume was more than five times the average, indicating massive investor conviction in the stock’s prospects. 

Ralph Lauren stock is currently in an actionable zone, after pulling back from a February 23 high of $190.41 and getting support at its 10-day moving average.

2. Sales resilience: The company is executing on its “Next Great Chapter” plan to accelerate growth worldwide. It’s realigned its brand portfolio and made new licensing deals to better focus on areas with the highest growth potential.

The Ralph Lauren earnings data show revenue growth picking up in the past two quarters, and earnings growth resumed in the third quarter. 

Holiday season sales came in higher than analysts had forecast, with China sales being a key growth driver.

“By region, growth was again led by Asia with particularly strong performance in China, where sales increased more than 30% this quarter on both comp and new store growth,” said CEO Patrice Louvet in the earnings conference call. “This was ahead of our expectations, even with last year's easier compares due to the surge in Covid cases.”

In addition, the company is looking to more robust digital sales channels to boost revenue worldwide. 

3. Earnings and margin growth: Wall Street is expecting the company to earn $10.21 a share this year, an increase of 22%. Next year that’s expected to rise by another 10% to $11.19 per share. 

Both those estimates have been revised higher recently. 

“We see operating margin improving slightly in FY 24 as freight costs and supply chain issues improve,” wrote CFRA analyst Zachary Warring in a February 24 note. 

“Inventory across the sub-industry remains elevated which will continue to drive promotional activity in the short term. We expect 12.2% operating margin in FY 24 after 11.6% in FY 23,” Warring added. “We see operating margin of 12.0% over the long term. Prior to the pandemic RL’s operating margin ranged from 9%-11%”

4. Industry strength: The apparel industry as a whole is outpacing others. A bullish trend within a particular industry shows wide demand. That, in turn, results in strong performance from individual stocks. 

Investors are seeing that play out right now with semiconductor stocks, but it’s also true for other industries, including biotech stocks and apparel. 

Other apparel industry leaders include G-III Apparel Group Ltd. (NASDAQ: GIII), PVH Corp. (NYSE: PVH) and Tapestry Inc. (NYSE: TPR). All those companies manufacture or market well-known global clothing brands. 

5. Analyst actions: Ralph Lauren analyst forecasts show a consensus view of “moderate buy.” 

After the third-quarter report, Goldman Sachs boosted its price target to $151 from $132, although that’s a conservative target, compared with many others.

CFRA’s Warring is maintaining a rating of “hold” on the stock. 

“Our Hold opinion and target price reflects our view that RL has benefitted from brand momentum and pent-up demand since the start of the pandemic, which we’ve seen normalize in recent quarters,” he wrote. “RL continues to see momentum in its digital ecosystem even as traffic normalizes in its physical stores, which should help margins moving forward.”