Signet Jewelers: A Value Gem?

12/04/2017 5:00 am EST


James Pearce

Director of Research, Investing Daily

Signet Jewelers Limited (SIG) is a retailer of diamond jewelry; its segments include Sterling Jewelers Zale Jewelry and Piercing Pagoda, notes Jim Pearce, editor of the specialized trading service, Systematic Wealth.

It isn’t often that our Rapid Profits Matrix assigns a near-perfect score to a stock for both its value and growth metrics, but that’s what happened when shares of Signet tanked after reducing guidance for the fourth quarter; following that announcement, the stock dropped from $75.84 to as low as $52.50.

From a value perspective, SIG is now priced at slightly more than 7 times reduced forward earnings, and only 0.5 times sales. As for growth, its yield-adjusted PEG ratio of 0.5 suggests it is oversold despite its reduced profit outlook.

Of course, it doesn’t take much to send a retail stock reeling these days, but a drop of that magnitude is extreme. Even still, with so little momentum behind retail stocks it will take more than a reversion to the mean to get SIG moving back up the charts.

I think that could be better than expected “Black Friday” sales for retailers reported next week. Given the very low expectation set by virtually every retailer that gave forward guidance for holiday sales, anything better than a washout should push the entire retail sector higher over the next month.

If I’m wrong about that, I still don’t see much more downside risk left in the stock. But it may take confirmation of decent Christmas sales to push it back above $60, which is why I am putting a three-month target hold on this position.

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