Has Signet Jewelers Reached Its Bottom?
On a day that saw the Dow Jones and S&P 500 record their worst day since September of last year, Signet Jewelers (NYSE:SIG) shares increased $0.38 (0.7%) on heavy volume. The largest U.S. specialty jewelry retailer saw 1.91 million shares trade hands on Wednesday compared to its average daily volume over the last month of approximately 0.88 million.
This is more than 2x its normal volume on a day where there was really no news (outside of the volume bump). Could this be a bullish signal for investors? Typically, a volume increase of this size with limited news implies market awareness and support for a more meaningful move upward.
As a quick reminder, the company's stock has been hammered over the last year. Shares have lost 45% of their value due to negative headlines and stumbling revenue growth. However, the stock may have finally reached its bottom while currently trading 25% below its 200-day moving average and 11% below its 50-day moving average.
Signet Jewelers' stock also looks attractive purely on a fundamental basis. Finbox.io's intrinsic value estimate of $66.84 implies that the stock is nearly 15% undervalued. The estimate is calculated by applying Wall Street projections to eleven separate valuation analyses.
<img src='http://res.cloudinary.com/finbox/image/upload/v1495077510/SIG_Fair_Value_oe48tx.jpg' alt= ‘SIG finbox.io fair value estimate’>
View all 11 valuation models that derive SIG's fair value estimate.
Positive Demographics Offer Long-Term Tailwinds
Signet Jewelers' sales decreased 2.2% in fiscal year 2017 but EBITDA actually grew over 9% as a result of margins expanding by 1.6%. Going forward, Wall Street expects even further margin expansion while sales stay around $6.4 billion per year as illustrated below.
<img width=100% src='http://res.cloudinary.com/finbox/image/upload/v1495077510/SIG_Performance_ffnnrz.jpg' alt= ‘SIG finbox.io fair value estimate’>
The projections above are used to calculate our previously mentioned $66.84 intrinsic value estimate but the projections may end up being conservative due to improving demographics.
Millennials could play a pivotal role going forward as we have recently overtaken Baby Boomers as America's largest generation. The oldest Millennials, whom have often been referred to as "Generation Rent", are now just reaching their mid 30s. Meaning that their attitudes will likely change toward a more settled life and therefore, may prefer to buy a home. This would help explain why the housing market is currently the strongest seller's market ever.
As a result, wedding rings and jewelry will undoubtedly follow Millennials who start opting for a more settled life.
Nice Upside For Signet Jewelers
Limited growth and unwelcome headlines have pushed Signet Jewelers' stock right at its 52-week low. However, shares may have reached their bottom as yesterday's high volume could provide stability for a large move upward.
Although demographic trends may not directly or immediately impact the company, it is a positive development that could potentially increase demand for its jewelry over the next several years. Additionally, the stock's current valuation implies very limited growth and looks highly attractive.
Finally, now could be a good entry point opportunity with earnings expected to be released on Thursday May 25th.
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photo credit: Philly in love
Note this is not a buy or sell recommendation on any company mentioned.
