The housing recovery is still on its way with the Commerce Department reporting that sales of new single-family homes were at a seasonally adjusted annual rate of 497,000. With new home sales come the purchasing of new home furnishings and Williams-Sonoma (NYSE:WSM) is a specialty retailer for just that. Williams-Sonoma is a dividend-paying company, which has been doing so for the past eight years at an increasing rate each year. The stock has returned nearly double the amount of the S&P 500 in 2013, up 32.19% compared to 18.21%. With that in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth picking up some more Williams-Sonoma right now for the housing recovery taking place and the dividend portion of my portfolio.
Williams-Sonoma currently trades at a trailing 12-month P/E ratio of 21.92, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 18.08 is currently fairly priced as well for the future in terms of the right here, right now. Next year's estimated earnings are $3.20/share. The PEG ratio (1.74), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 5-year horizon), tells me that Williams-Sonoma is fairly priced based on a 5-year EPS growth rate of 12.57%.
On a financial basis the things I look for are the dividend payouts, return on assets, equity and investment. Williams-Sonoma boasts a dividend of 2.14% with a payout ratio of 36.1% while sporting return on assets, equity and investment values of 12.9%, 21.2% and 19.5% respectively; which are all respectable values. If maybe you feel the market will retract a little more and would like a safety play then the 2.14% yield of this company is good enough for you to take shelter in for the time being while the housing recovery takes place.
Looking first at the relative strength index chart (RSI) at the top, I see the stock in middle ground territory with a value of 55.85 but with downward trajectory, which means there may be a short-term sell-off coming soon. Next, I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is below the red line with the divergence bars increasing in height to the downside, which tells me that the stock has downward momentum. As for the stock price itself ($57.86), I'd expect $60.14 to act as resistance and $57.57 to act as support. If the stock can break through the $60.14 resistance, I see it going up to $63. On the downside if the stock can't be supported by the $57.87 level it can go down to $54.79. These scenarios provide for a risk/reward ratio of -5.31% to 8.88%.
- The company declared a $0.31 per share quarterly dividend with an ex-date that occurred on July 24, 2013, and payable on August 2, 2013.
- On July 24, 2013 the Commerce Department reported that sales of new single-family homes were at a seasonally adjusted annual rate of 497,000 for an 8.3% increase from the May rate of 459,000.
Williams-Sonoma is fairly valued based on future earnings as well as on future growth prospects. The growth prospects are in double digits for the company, so I'd like to see the price of the stock itself come down a little for it to be more attractive. Financially, the payout ratio is extremely low in spite of recently raising its quarterly dividend 41% back in April of 2013. The technical situation of how the stock is currently trading is what is telling me that it can trade to the downside for a bit and I believe if I can get a pull back as I'm expecting I will begin to accumulate some more shares. Other than the technical situation I believe the stock is almost ripe for a little bit of picking.
Disclosure: I am long WSM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.