Williams-Sonoma (NYSE:WSM) 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 August 28, 2013, the company reported second quarter earnings of $0.49 per share, which beat the consensus of analysts' estimates by $0.02. Since last writing about the company on July 25, 2013, the stock is down 8.4%, and is losing to the S&P 500, which has gained 3.47% in the same time frame. Fortunately, I did not buy into the stock at that time and I think right now is a good time to reevaluate it. 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 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 19.56, 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 16.59 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.43), 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 13.66%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.66%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 12.92%.
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 46% of trailing 12-month earnings, while sporting return on assets, equity and investment values of 12.9%, 21.6% and 19.5%, respectively. These 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 2.34% 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 14.6%.
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in oversold territory with a value of 37.95 with upward trajectory, indicating a bullish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is about to cross above the red line with the divergence bars increasing in height, also indicating a bullish pattern. As for the stock price itself ($53), I'm looking at $54.47 to act as resistance and $52.75 to act as support for a risk/reward ratio, which plays out to be -0.47% to 2.77%.
- Bloomberg recently reported that Williams-Sonoma has fallen victim to "showrooming" as Best Buy (NYSE:BBY) once did. This is evidenced as same store sales have declined for the past seven quarters, but if the company is going to be lumped in with Best Buy, the "showrooming" category, then I want to buy more of it! Since being perceived as "showrooming" company Best Buy stock is up 262% in 2013!
- The company declared a quarterly dividend of $0.31 per share with an ex-date of Oct. 23, 2013 and pay date of Nov. 25.
My fear is that with this shift the consumer has been saving their money for things like the new iPhone 5S from Apple (NASDAQ:AAPL), as opposed to goods for the home such as those sold in Williams-Sonoma. If this is the case then Williams-Sonoma may possibly take a hit for this third quarter. The company is fairly valued on future earnings and growth estimates and can come in a bit more. Nonetheless, Williams-Sonoma has great short-term growth prospects, long-term growth prospects, and bullish technicals. It is for these three reasons I'm going to layer into the stock right now and evaluate again after earnings.
Disclaimer: 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 WSM, AAPL. 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.