The last time I wrote about Williams-Sonoma (WSM) I bought a small batch in it stating that it had excellent short-term and long-term earnings growth prospects coupled with bullish technicals. Since the last article it actually shot up 4.74% excluding the dividend (it is up 5.32% including the dividend) versus the 2.1% gain the S&P500 (SPY) posted. Williams-Sonoma is a specialty retailer of products for the home, operating stores under the name of Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation. On November 20, 2013, the company reported third quarter earnings of $0.58 per share, which beat the consensus of analysts' estimates by $0.04. In the past year the company's stock is up 28.41% excluding dividends (up 30.61% including dividends), and is losing to the S&P 500, which has gained 30.98% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the services sector of my dividend growth portfolio.
The company currently trades at a trailing 12-month P/E ratio of 20.48, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 17.43 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.52), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 13.51%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.51%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 13.11%. Below is a comparison table of the fundamentals metrics for the company from the time I wrote the last article to what it is right now.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 2.23% with a payout ratio of 46% of trailing 12-month earnings while sporting return on assets, equity and investment values of 12.9%, 21.6% and 19.5%, respectively, which are all respectable values but nothing to go writing home about. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.23% yield of this company is good enough for me to take shelter in for the time being (for the dividend alone). The company has been increasing its dividends for the past eight years at a 5-year dividend growth rate of 14.6%. Below is a comparison table of the financial metrics for the company from the time of the last article to what it is right now.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle-ground territory with a value of 57.23 and downward trajectory, indicating a bearish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line but flattening with the divergence bars decreasing in height, also indicating a bearish pattern. As for the stock price itself ($55.51), I'm looking at $58.63 to act as resistance and the 50-day moving average (currently at $54.44) to act as support for a risk/reward ratio, which plays out to be -1.93% to 5.62%.
- The company reported third quarter earnings on 20Nov13 of $0.58 per share on revenue of $1.05 billion versus expectations of $0.54 per share on revenue of $1.04 billion.
- Comparable sales grew 8.2% year over year with Pottery Barn +8.4%, Williams-Sonoma +1.4%, Pottery Barn Kids +3.9%, West Elm +22.2%, and PBteen +16.7%.
- Direct-to-consumer revenue grew 14.5% year over year to $512 million and represented 49% of total sales.
Because the company reported after the bell Wednesday the early indication is that it will be up about 5% when it opens for trading Thursday morning. That up 5% move would hit my level of resistance so I'd like to see how it does a couple of days after earnings because I believe it might hit overbought territory due to earnings. Nonetheless the stock is fairly valued based on future earnings and growth potential, but it is the short and long-term growth potential I love about the company. Financially the company is performing well, but the dividend yield has come down a bit albeit at the expense of a higher share price which I will take any day of the week. On a technical basis I would have said that I'd expect the stock to continue trending downwards for the short term, but I believe there will be at least a 5% pop in it Thursday when it opens for trading. I would have loved to buy some more of the stock right before earnings but I will wait a little bit to see how the stock reacts, so I will not be buying any new shares for the time being.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!