Here's Why Signet Jewelers' Stock Looks Attractive

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The following was originally published on Finbox.io

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 Ltd. SIG shares increased $0.38 (0.7 percent) 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 percent of their value due to negative headlines and stumbling revenue growth. However, the stock may have finally reached its bottom while currently trading 25 percent below its 200-day moving average and 11 percent 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 percent undervalued. The estimate is calculated by applying Wall Street projections to eleven separate valuation analyses.


Positive Demographics Offer Long-Term Tailwinds

Signet Jewelers' sales decreased 2.2 percent in fiscal year 2017 but EBITDA actually grew over 9 percent as a result of margins expanding by 1.6 percent. Going forward, Wall Street expects even further margin expansion while sales stay around $6.4 billion per year as illustrated below.

The oldest Millennials, whom have often been referred to as "Generation Rent", are now just reaching their mid 30's. 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.


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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.

Get Started Now!

Note this is not a buy or sell recommendation on any company mentioned.

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Posted In: OpinionTrading IdeasGeneralfinbox
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