Williams-Sonoma (WSM) is a specialty retailer that operates home furnishing and houseware brands, such as Williams Sonoma, Pottery Barn, West Elm, Rejuvenation, Mark and Graham, and others, explains Ben Reynolds, editor of Sure Dividend.
The company operates traditional brick-and-mortar retail locations but also sells its goods through e-commerce and direct-mail catalogs. It was founded in 1956, produces almost $9 billion in annual revenue, and has a current market cap of $7.7 billion. Its competitive advantage lies in its unique product portfolio and successful shift to online sales.
Williams-Sonoma has an impressive growth record. It has grown its earnings-per-share every year in the last decade, at a 22% average annual rate. We think that the retailer has promising growth potential, mostly thanks to its successful shift to online sales.
Nevertheless, due to the high comparison base formed this year, as well as guidance that was pulled due to uncertainty from the management team, we assume only 3% annual EPS growth over the next five years.
Williams-Sonoma is expected to earn $14.20 per share in 2022. Based on the current share price of $117, shares are presently trading at 8.2 times forward earnings. This valuation multiple is much lower than the 7-year average of 14.0 for the stock.
We expect the stock to revert to its average valuation level over the next five years. In such a case, the stock would enjoy an 11.2% annualized gain from valuation. When combined with a 3.0% growth rate and the 2.7% dividend yield, expected total returns come to 16.4% per year over the next five years.
