Comparing Kate Spade to Michael Kors? Think again

Michael Kors' rapid growth is giving one fellow luxury label a bad rap.

The market's fear that Kors could be reaching saturation in the U.S. has contributed to a sympathetic stock meltdown at Kate Spade, which has seen its shares plummet nearly 70 percent since mid-August, when it beat consensus earnings estimates on 30 percent comparable sales growth.

But although many people draw parallels between the two brands, which both sell handbags at an accessible price, Sterne Agee analyst Ike Boruchow argued in a note to investors on Monday that the comparisons "pretty much end there."

Models pose at the Kate Spade presentation during MBFW Spring 2015 in New York.
Adam Jeffery | CNBC
Models pose at the Kate Spade presentation during MBFW Spring 2015 in New York.

While he predicts Kors this year will become a $4 billion brand that is nearing saturation, Kate is only a $1 billion company with significant runway ahead. Among its opportunities, Spade is only 40 percent toward its long-term target of 600 stores around the world, and is likely to enter more of the best-performing U.S. malls.

Read MoreKate's experiment: Shop its construction site

Aside from the brand's "massive [square] footage opportunity," it's poised to improve its bottom line as it scales its business, and its topline should see a boost from increased brand awareness, Boruchow said.

"Comparison to [Michael Kors'] business today is fairly irrelevant," said Boruchow, who has a $38 price target on Kate Spade. "What's more relevant is where similar retail growth stories over the past 15 years have traded—and on that basis [Kate Spade] is actually extremely undervalued."

Hot retail stocks to watch
Hot retail stocks to watch   

To get a better read on Kate's appropriate valuation, he compared the company's performance with six other retailers that experienced rapid growth, at the time they were worth about $1 billion. These included Lululemon in 2011, Coach in 2003 and Michael Kors in 2012.

Read MorePriced out? Soaring outlet rents squeeze retailers

When drawing these more appropriate parallels, Boruchow said Kate trades well below the other retailers' average multiple of 17.7 times earnings, at 15.6 times EBITDA.

"The market is currently discounting [Kate Spade's] growth far more than it did for other hyper-growth retailers over the past 15 years," he said.

Read MoreHigh stakes as runway fashion goes mainstream

Still, it's not all good news for Kate, which has seen its margins come under pressure due to the highly competitive retail environment. In addition, Boruchow said, its new Saturday label is taking hold slower than expected, which he blamed on a poor mix of products. The line is expected to lose between $15 million and $20 million this year, according to the company's guidance.

Kate Spade shares were trading slightly higher, near $25, on Monday.