Signet Jewelers: A Gem for Value Investors?

03/07/2018 5:00 am EST


John Reese

Founder and CEO, And Validea Capital Management

To select stocks for his recommended buy list, John Reese assesses the criteria used by the market's most legendary investors. Here, the editor of Validea reviews Signet Jewelers Ltd. (SIG) based on the value investing strategy of Benjamin Graham.

Signet Jewelers Limited is a retailer of diamond jewelry; its segments include Zale Jewelry and Piercing Pagoda , Kay Jewelers, and Jared. Below we review the criteria for our Ben Graham model.

Sector: PASS

Signet Jewelers is neither a technology nor financial company, and therefore this methodology is applicable.

Sales: PASS

The investor must select companies of "adequate size". This includes companies with annual sales greater than $1 billion. SIG's sales of $6,229.8 million, based on trailing 12 month sales, pass this test.

Current ratio: PASS

The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. SIG's current ratio of 2.63 passes the test.

Long-term debt in relation to net current assets: PASS

For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for SIG is $696.8 million, while the net current assets are $2,144.7 million. SIG passes this test.

Long-term EPS growth: PASS

Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 10 years. We have data for 7 years, and have adjusted this requirement to be a 21% gain over the 7 year period. Companies with this type of growth tend to be financially secure and have proven themselves over time. SIG's EPS growth over that period of 122.7% passes the EPS growth test.

P/E ratio: PASS

The price-to-earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. SIG's P/E of 8.80 (using the current PE) passes this test.

Price-to-book ratio: PASS

The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. The stock's Price/Book ratio is 1.43, while the P/E is 8.80. SIG passes the Price/Book test.

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