Williams Sonoma Has Been Very Rewarding In The Last 18 Months

| About: Williams-Sonoma Inc. (WSM)
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Summary

The stock always appears to be fairly valued whenever I take a look at it, but I'm letting my position ride up with the stock price.

The dividend is a bit small but it has the potential to grow quite a bit.

Earnings estimates for 2015 have increased by 0.6%. 2015 estimate increases for other stocks I follow haven't really manifested themselves, so I consider Williams Sonoma a rarity.

The last time I analyzed Williams-Sonoma Inc. (NYSE:WSM) on September 26, 2014, I stated, "I still like the stock but won't be making a purchase for another month or so." I never did purchase a share since that time and since the article was published the stock has appreciated 9.36% versus the 5.11% gain 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 19, 2014, the company reported third quarter earnings of $0.68 per share, which beat the consensus of analysts' estimates by $0.05. In the past year, the company's stock is up 23.56% excluding dividends (up 25.62% including dividends) and is beating the S&P 500, which has gained 14.42% in the same time frame. Since initiating my position back on May 21, 2013, I'm up 29.92% inclusive of reinvested dividends and dollar cost averaging. I'd like to take a moment to evaluate the stock to see if right now is a good time to purchase more for the services and dividend sector of my portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 24.7, 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 20.23 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.93), 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 12.77%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 12.77%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 13.7%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

21Oct13

53

19.56

16.59

3.19

47

1.43

13.66

20Nov13

55.51

20.48

17.43

3.18

47

1.52

13.51

29Jan14

52.93

18.84

16.52

3.20

48

1.45

13.02

19Jul14

69.99

23.97

19.31

3.62

54

1.81

13.21

25Sep14

66.80

22.57

18.61

3.59

54

1.69

13.36

02Dec14

73.05

24.70

20.23

3.61

54

1.93

12.77

Financials

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 1.81% with a payout ratio of 45% of trailing 12-month earnings while sporting return on assets, equity and investment values of 12.9%, 23.9% and 22.1%, 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 1.81% yield of this company alone is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 9 years at a 5-year dividend growth rate of 19.3%. Below is a comparison table of the financial metrics for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

21Oct13

2.34

46

12.9

21.6

19.5

20Nov13

2.23

46

12.9

21.6

19.5

29Jan14

2.34

44

13

22.4

19.5

19Jul14

1.89

45

12.9

23.5

22.1

25Sep14

1.98

45

12.9

23.9

22.1

02Dec14

1.81

45

12.9

23.9

22.1

Technicals

Looking first at the relative strength index chart [RSI] at the top, I see the stock dropping from overbought territory with a current value of 64.14. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height which tells me bearish momentum is about to mount in the name. As for the stock price itself ($73.04), I'm looking at $79.41 to act as resistance and $71.79 to act as support for a risk/reward ratio which plays out to be -1.71% to 8.72%.

Cyber Monday Could Bode Well For The Company

Roughly 50% of the company's sales come from the on-line sphere of scope, or direct to customer segment. This quarter should turn out to be no different than the past as the company has one of the top websites in the retail industry. The site is always fast and responsive to the customer's needs, making it a point of differentiation from other retailers.

Conclusion

Owning this stock has been very rewarding for the past 18 months when compared to the overall market. Fundamentally I believe the company to be fairly valued on next year's earnings estimates and on earnings growth potential. Financially, the dividend is small and has a lot of room to grow. On a technical basis the risk/reward ratio shows me there is more reward than risk right now. Though there is more reward than risk now I still believe the momentum is strong enough to carry down even further as today was a broad up day but the stock didn't participate in the rally, hence I'm not buying any shares soon.

Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. 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: The author is long WSM, SPY.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.