Today we have a moderately speculative idea.: take shares of the jewelry business Signet Jewelers (NYSE: SIG), in order to make money on the rebound of these shares.
Growth potential and validity: 14,5% behind 15 months excluding dividends; 31,5% behind 3 years excluding dividends; 9% per annum during 10 years including dividends.
Why stocks can go up: the company is obscenely cheap.
How do we act: we take shares now by 82,77 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
Signet sells jewelry under its own brands. Signet has its own network of 2800 stores and different types of brands. Other companies are engaged in the extraction of raw materials and the production of jewelry.
Signet's annual report is quite informative and gives us a very good idea of the nature of its business..
The company's revenue by type of buyers:
- Wedding shopping, and on the anniversary — 47%.
- Decorations — 46%.
- Clock — 6%.
- The Mysterious "Other" — 1%. It's not just jewelry. Extended service plans are also included here.
Revenue by country and region:
- North America - 92,82%. This segment includes the United States and Canada. Segment operating margin — 13,5% from its proceeds. In this segment, 2506 stores of the company are mainly located in department stores.
- International Sales — 6,29% proceeds. The main sales are in the UK and Ireland. Segment operating margin — 2,92% from its proceeds.
- Other - 0,89%. All non-core operations of the company, including its initiatives to purchase diamonds.
About 20% purchases from the company are made online, rest 80% accounted for by stores and other offline channels.
Arguments in favor of the company
Fell down. The company's shares fell without a good reason from 109 $ in November to 82,77 $. I believe, that, given all of the following points, we have every right to expect a rebound..
Yes kind of norms. Americans have a significant surplus of money: they hold 14% from its annual consumption in excess savings, 70% from these savings belong to the richest 40%. Attendance at department stores in the United States, where the company has most of the stores, albeit well below historical highs, but still better, than even six months ago. Probably, the company can count on good sales this year even taking into account the well-known events in Eastern Europe.
Can buy. Signet is a leader in its field: 9,3% from the global jewelry market. P / S at the company — 0,6, P / E — 6,88. In absolute numbers, the company is also cheap.: capitalization — 4.12 bln. It seems to me, with all these points in mind, it may well be bought..
Inexpensive and very strong business with a good final margin of about 10% from the proceeds for a potential buyer will certainly be more interesting than some Anaplan, which to its buyer for 10 billion and with P / S in the area 15 gives losses in excess 30% from proceeds. These companies are although from different sectors, but profit at a reasonable price or there, or not, the rest is sophistry.
Dividends. The company pays 0,72 $ per share per year, what gives 0,97% per annum. It takes her less 10% from her profit, And, it seems to me, payments may well increase by 4-5 times.
What can get in the way
Economy inside and out. Maybe, the main money the company receives from poor customers. In North America 40,9% Signet receives revenue from jewelry sales under the loan and leasing program. The average check in Signet stores is 448 $ in America and £129 abroad. It's not crazy big money by the standards of the Western world., and it's suggestive.: may be, that signet buys poor Americans.
So if in the US there is still a crisis and a strong reduction in consumption, then it can hit the company. Also, reporting can spoil the UK, where the main foreign sales of the company are made. That's where, because of the events in Ukraine, the reduction in consumption will soon begin.: in 2022, the company's sales in the UK just fell due to economic problems on the island.
However, I hope, that buy in Signet still the top of the middle class and the rich. As the experience of the hell of the pandemic 2020-2022 has shown, these categories of consumers will be fine., even when everyone else is bad..
Here I am, however, would like to complain about the lack of sales of the company in India and China. The population there is very fond of jewelry and in case of crises buys them in frenzied quantities.. Maybe, the company plans to expand in these regions, but it will take a lot of time and money.
Accounting. The company has 4.359 billion debts, of which 2.07 billion must be repaid within a year. There's not a lot of money at her disposal.: 1,418 billion in accounts and 19.9 million counterparty debts. Bearing in mind that, that loans will soon rise in price, the company may postpone the increase in payments.
Resume
Shares can be taken now by 82,77 $. Then there are three options:
- wait for the price 95 $. Think, we will reach this level in the next 15 Months;
- keep up 109 $. Here it is better to prepare to wait three years;
- hold shares 10 years, while Signet is increasing dividends, And, probably, someone will buy it during this time.
