Signet Jewelers (SIG): A Fairly Valued Gem in the Retail Industry
Signet Jewelers Ltd (NYSE:SIG) experienced a daily loss of -3.52%, but over the last three months, it has gained 9.06%. With an Earnings Per Share (EPS) of 8.79, the question arises: Is the stock fairly valued? This article will delve into the valuation analysis of Signet Jewelers, providing insights to make an informed investment decision.
Company Overview
Signet Jewelers Ltd, a prominent retailer of diamond jewelry, offers a wide range of products including bridal, fashion, watches, and more. Predominantly operating in North America, Signet Jewelers has established a strong market presence. With a current stock price of $69.25 and a GF Value of $68.6, we begin our in-depth exploration of the company's intrinsic value.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, GuruFocus adjustment factor, and future business performance estimates. This GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price significantly deviates from the GF Value Line, it indicates either overvaluation or undervaluation, influencing its future return.
At its current price of $69.25 per share, Signet Jewelers (NYSE:SIG) has a market cap of $3.10 billion. Based on the GF Value, the stock is considered fairly valued. Consequently, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Assessing the financial strength of a company is crucial before investing. Companies with poor financial strength pose a higher risk of permanent loss. Signet Jewelers, with a cash-to-debt ratio of 0.53, ranks better than 52.5% of 1101 companies in the Retail - Cyclical industry. Its overall financial strength is 7 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Signet Jewelers, profitable in 8 of the past 10 years, has an operating margin of 8.77%, ranking better than 74.35% of 1115 companies in the Retail - Cyclical industry. Its profitability rank is 7 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. Signet Jewelers's 3-year average revenue growth rate is better than 54.29% of 1048 companies in the Retail - Cyclical industry. Its 3-year average EBITDA growth rate is 18.7%, ranking better than 69.31% of 896 companies in the same industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) provides insights into its profitability. For the past 12 months, Signet Jewelers's ROIC is 12.41, and its WACC is 8.16, indicating a favorable investment scenario.
Conclusion
In conclusion, the stock of Signet Jewelers (NYSE:SIG) is considered fairly valued. The company's financial condition and profitability are fair, and its growth ranks better than 69.31% of companies in the Retail - Cyclical industry. For more detailed financial information about Signet Jewelers, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
