The last time I wrote about Williams-Sonoma Inc. (NYSE:WSM) I stated, "I will not be buying any new shares for the time being." Since the last article it dropped 11.4% versus the 1.2% drop the S&P 500 (NYSEARCA: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 $0.04. In the past year the company's stock is up 17.05% excluding dividends (up 19.32% including dividends), and is losing to the S&P 500, which has gained 18.05% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the services sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 18.84, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 16.52 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.45), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 13.02%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.02%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 13.49%.
EPS Next YR ($)
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 2.34% with a payout ratio of 44% of trailing 12-month earnings while sporting return on assets, equity and investment values of 13%, 22.4% and 19.5%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.34% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 8 years at a 5-year dividend growth rate of 19.3%.
Payout TTM (%)
Looking first at the relative strength index chart (RSI) at the top, I see the stock in oversold territory with a value of 30.8. I will look at the moving average convergence-divergence (MACD) chart next. I see that the black line is below the red line with the divergence bars increasing in height, indicating some bullish momentum should be coming soon. As for the stock price itself ($52.93), I'm looking at $55.90 to act as resistance and $52 to act as support for a risk/reward ratio which plays out to be -1.75% to 5.61%.
Back on 08Jan14 Bed Bath & Beyond (NASDAQ:BBBY) reported earnings and was taken out back and beaten to a pulp, taking Williams-Sonoma along with it. I for one don't believe Williams-Sonoma should be lumped together with Bed Bath & Beyond because it actually has consistent earnings growth for the past three quarters and I wouldn't be surprised to hear Williams-Sonoma actually took away some Bed Bath & Beyond customers when it reports sometime in February. Fundamentally the company is fairly priced based on future earnings and on future growth potential even after the beating it has taken. Financially the efficiency ratios have increased a bit. On a technical basis I believe we are near the bottom of the individual stock story, but not the market. I'm going to actually pull the trigger on this particular name in the face of this market pullback.
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!
Disclosure: I am long SPY, 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.