Improvement in profitability and outperformance against the industry can be important characteristics in a stock for some investors. Below, I will assess Signet Jewelers Limited's (NYSE:SIG) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
How Well Did SIG Perform?
SIG has recently become loss-making, with its trailing twelve-month earnings of -US$216.8m (from 03 August 2019) compared to its previous earnings of US$486m. The speed at which its operating expenses is growing has exceeded top-line growth, pulling SIG into the loss-making zone.
Eyeballing growth from a sector-level, the US specialty retail industry has been growing, albeit, at a unexciting single-digit rate of 5.6% in the prior year, and 8.0% over the previous five years. This growth is a median of profitable companies of 25 Specialty Retail companies in US including National Vision Holdings, Tandy Leather Factory and Office Depot. This shows that any tailwind the industry is deriving benefit from, Signet Jewelers has not been able to leverage it as much as its industry peers.
Since Signet Jewelers is loss-making, with operating expenses (opex) growing year-on-year at 2.8%, it may need to raise more cash over the next year. It currently has US$272m in cash and short-term investments, however, opex (SG&A and one-year R&D) reachedUS$1.9b in the latest twelve months. Although this is a relatively simplistic calculation, and Signet Jewelers may reduce its costs or open a new line of credit instead of issuing new equity shares, the analysis still helps us understand how sustainable the Signet Jewelers’s operation is, and when things may have to change.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always hard to forecast what will occur going forward, and when. The most valuable step is to assess company-specific issues Signet Jewelers may be facing and whether management guidance has dependably been met in the past. You should continue to research Signet Jewelers to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SIG’s future growth? Take a look at our free research report of analyst consensus for SIG’s outlook.
- Financial Health: Are SIG’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 03 August 2019. This may not be consistent with full year annual report figures.
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