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Williams-Sonoma: Cooking up Growth
07/24/2013 7:00 am EST
In his Validea newsletter, John Reese assesses stocks based on the investing criteria of legendary investors; in this case, he looks at the Cornerstone growth & value strategy of James P. O'Shaughnessy.
The Cornerstone Value Strategy looks for large, well-known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings.
Williams-Sonoma, (WSM) is a multi-channel specialty retailer of products for the home. The direct-to-customer segment sells its products through its e-commerce Web sites and seven direct-mail catalogs.
The retail segment of its business sells products through its five retail store concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, and Rejuvenation.) The company operates 576 stores in 44 states, Washington, DC, Canada, and Puerto Rico.
The first requirement of the Cornerstone Strategy is that the company has a market capitalization of at least $150 million.
This will screen out the companies that are too illiquid for most investors, but still include a small growth company. WSM, with a market cap of $5.5 billion, passes this criterion.
The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five-year period.
WSM, whose annual EPS before extraordinary items for the last five years (from earliest to the most recent fiscal year) were 0.28, 0.72, 1.83, 2.22, and 2.54, passes this test.
The next test is the price/sales ratio, which should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. WSM's Price/Sales ratio of 1.34, based on trailing 12-month sales, passes this criterion.
The final criterion for the Cornerstone Growth Strategy requires that the relative strength of the company be among the top 50 of the stocks screened using the previous criterion.
This gives you the opportunity to buy the growth stocks you are searching for, just as the market is embracing them. WSM, whose relative strength is 84, is in the top 50 and would pass this last criterion.
Overall, this stock earns a 100% rating based on the Cornerstone Growth Strategy.Subscribe to Validea here...
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