Signet Jewelers Limited (SIG) in Hamilton, Bermuda, runs nearly 2,800 stores under the renowned brands of Kay Jewelers, Zales, Jared, H. Samuel, Ernest Jones, Peoples, Piercing Pagoda, and JamesAllen.com, as well as a jewelry subscription service, Rocksbox. The company is working to improve its online shopping experience with in-store consultations and services, such as buy online, pick up in-store, and curbside delivery.

SIG’s shares are up 18.9% over the past year and 14.7% over the past nine months to close yesterday’s trading session at $74.68.

SIG posted strong fourth-quarter fiscal 2022 results, with e-commerce sales increasing 8.7% from the previous year’s quarter to $556 million. Its retail sales grew 34.6% year-over-year to $2.3 billion. Its e-commerce sales in North America increased 14% year-over-year, while its same-store sales increased 30.6%.

Here is what could shape SIG’s performance in the near term:

Robust Financials

During its fiscal fourth quarter, ended Jan. 29, 2022, SIG’s sales increased 28.6% year-over-year to $2.81 billion. Its operating income increased 37.9% year-over-year to $402.4 billion. And the company’s net income grew 23.6% from its year-ago value to $214.3 billion, while its EPS grew 19.2% from the prior-year quarter to $4.91.

Strong Profitability

SIG’s  9.8% trailing-12-months net income margin is 48.8% higher than the 6.6% industry average. Also, its ROC, gross profit margin and ROA are 105.3%, 8.9%, and 91.4% higher than the respective industry averages. Furthermore, its $1.26 billion in cash from operations is 669.9% higher than the $163.29 million industry average.

Impressive Growth Prospects

The Street expects SIG’s revenues to rise 2.10% year-over-year to $7.99 billion in its fiscal 2022. In addition, SIG’s EPS is expected to rise at a 7% CAGR over the next five years. Also, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in three of the trailing four quarters.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 6.33x, which is 49.8% lower than the 12.60x industry average. Its 0.53x forward EV/Sales is 53.1% lower than the 1.13x industry average. Moreover, SIG’s 2x forward Price/Book  is 19.1% lower than the 2.47x industry average.

Consensus Rating and Price Target Indicate Potential Upside

Among the three Wall Street analysts that rated SIG, two rated it Buy, and one rated it Hold. The 12-month median price target of $112.33 indicates a 50.4% potential upside. The price targets range from a low of $94.00 to a high of $138.00.

POWR Ratings Reflect Solid Prospects

SIG has an overall B grade, which equates to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SIG has a B grade for Quality and Value. SIG’s solid earnings and revenue growth potential are  consistent with its  Quality grade. In addition, the company’s lower-than-industry multiples are in sync with the Value grade.

Among the 67 stocks in the A-rated Fashion – Luxury industry, SIG is ranked #25.

Beyond what I stated above, we have graded SIG for Growth, Sentiment, Stability, and Momentum. Get all SIG ratings here.

Bottom Line

Solid gains from growth initiatives such as distinctive banner value propositions, marketing activities, and enhanced connected-commerce capabilities contribute to company performance. So, given the company’s financial soundness and high-profit margins, we believe the stock is primed for tremendous upside in the near term and might be a great investment bet now.

How Does Signet Jewelers Ltd. (SIG) Stack Up Against its Peers?

SIG has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: J.Jill Inc. (JILL), Hugo Boss AG (BOSSY), and Caleres Inc. (CAL).

SIG shares were unchanged in premarket trading Friday. Year-to-date, SIG has declined -13.76%, versus a -9.65% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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