Today we have a speculative idea: take shares of the American network, selling goods for the kitchen and home, Williams-Sonoma (NYSE: WSM), to capitalize on the growth of her business.
Growth potential and validity: 20,5% excluding dividends for 16 Months; 48,5% behind 3 years excluding dividends; 10% per annum during 10 years including dividends. All options take into account the possibility of the company separating some divisions into separate issuers..
Why stocks can go up: the company is inexpensive, promising and it has the potential to increase dividends.
How do we act: we take shares now by 148,15 $.
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.
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Investment editorial office
What the company makes money on
WSM is a chain of stores, selling household goods. According to the company's latest report, its revenue by types of brands-goods is divided as follows:
- Pottery Barn — 37,84%. Home furniture.
- West Elm — 27,1%. Also home furniture, but with an admixture of handicraft production.
- Williams Sonoma — 16,31%. Tableware and kitchen appliances.
- Pottery Barn Kids and Teen — 13,82%. Furniture, bed linen and gifts for children and teenagers.
- Other - 4,93%. Income from the sale of franchises abroad, Rejuvenation, who sell lighting equipment, and Mark and Graham with accessories.
The company has its own production, but most of its products are made by third-party manufacturers..
The company makes 70% online sales, 30% are 577 physical WSM stores. Almost all the money the company receives in the United States.
Arguments in favor of the company
Fell down. Since November, the company's shares have fallen sharply: from 221 to 148,15 $ without any good reason. This gives us the opportunity to capitalize on the rebound.
The property. The company's product line is quite diverse and ensures the sustainable development of the entire company., but I would link its main prospects to the US real estate market.. U.S. consumers are increasingly investing in residential homes for resale or rental purposes.. The housing stock in the United States, meanwhile, is rapidly becoming obsolete..
Maybe, WSM products will be in great demand, among other things, and as part of the demand for registration of real estate before preparing for sale or after the entry of new tenants. I see this trend as quite strong.: oligopoly of large housebuilders limits supply with very high demand, so you can't wait, that this bubble will burst in the coming years 10.
Pay Respect. In a tough 2021, when all companies suffered from the rising cost of raw materials and logistics, WSM increased its operating margin from 13.4 to 17,6% from proceeds. This is a great result for the company., which does not even control the production of its goods in large part.
Online commerce. It's a profitable and profitable online business – much more marginal. Amazon. Awareness of this fact can attract many investors to the company's shares.. That being said, WSM is very cheap.: P / S — 1,42, P / E — 10,64, and its capitalization is only 10.86 billion. This will enhance the effect of the influx of shareholders into these shares..
Can buy. Considering all of the above, the company may well be bought by some private foundation or even Amazon.
The best, certainly, ahead of. Williams-Sonoma is, in fact, a set of different brands. It may well allocate part of the divisions into a separate issuer., and it will be good luck for shareholders. Shares of individual divisions can grow several times more vigorously than a single company. However, it's more of an option only for long-term investors.: probably, here you have to wait 5 years, maybe, and more.
Dividends. The company pays 3,12 $ per share per year, what does it take 21,15% from profit, therefore, it may well increase the amount of payments. And, given the positive dynamics of its business, we can expect profit growth, from which dividends will be paid, retaining the same ratio — 21,15% from profit.
Now the dividend yield of WSM shares is 2,1% annual — which in itself is not bad: this is well above the average S dividend yield&P 500. I think, what, taking into account all the positive aspects in the company's business, investors can run into its shares, who burn their pocket money and want, to make that money "work", and did not lie idle".
Share repurchase. The company recently authorized a $1.5 billion share repurchase program., which is quite a lot — 13,81% from its capitalization. I look very askance at stock buybacks.: it artificially reduces P / E, this money could find a better use in the form of investments in business and, finally, share repurchase is an actual subsidization of the share options program for the company's employees.
Buyback of shares from the market balances the dilution of the company's shareholder share, when employees exercise their options, thereby creating new shares. But one way or another, the ransom program, especially such a large-scale, creates an additional source of demand for the company's shares, which artificially reduces supply in the market and contributes to the growth of shares.
What can get in the way
Money becomes more expensive. FED inexorably and ruthlessly raises the stakes, and this creates risks for WSM.
Debt servicing becomes more expensive. And the WSM has 2.961 billion debts, of which 1.771 billion rubles need to be repaid during the year. WSM doesn't have much money at its disposal: there are 850.338 million in accounts and 131.683 million counterparty debts. In general, I can't say, that this amount of debt will break the company, but still, the presence of large debts may somewhat reduce the rate of dividend increases..
In theory, it is also possible to reduce payments in the event of unexpected expenses or a sharp decline in the company's profitability.. It's me, however, seems unlikely: WSM business is well set up and running almost on autopilot.
Consumers will stop consuming. Raising the stakes, probably, slow down the growth rate of consumer spending on many categories of goods, which is just traded by WSM. This, however, only a hypothesis - can become, that I blow on the water.
Everything is getting more expensive. That, that problems with logistics and raw materials did not begin to strangle the WSM in 2021, doesn't mean, that this will not happen in 2022. So you need to be mentally prepared for a decrease in the profitability of the company's business..
Resume
Shares can be taken now by 148,15 $. And then there are several options:
- wait 180 $. Think, we will reach this level in the next 16 Months. From personal experience: I took these shares by 166,51 $ 7 June 2021 in order to sell them for 186 $ during the next 14 Months. I ended up selling them for 203 $ in November. Now, it seems to me, the company is in a better position, what was then;
- wait for the return of shares to the price 221 $. Here it is better to prepare to wait three years;
- hold shares 10 years, receive growing dividends and become a beneficiary of a hypothetical division of the company.
In the case of Williams-Sonoma, the dividend factor is of considerable importance., therefore, it is better to look at the news section on the company's website, in order to have time to sell shares on the St. Petersburg Exchange before, how the information about the dividend cut will begin to digest the US market. Although, honestly, the probability of such a reduction seems to me to be low..
So far, trading on the "SPb-Exchange" begins later than usual, which deprives us of a temporary advantage. Will hope, soon this problem will be solved.
