Signet Jewelers: Luxury for Less

On the whole, luxury retail has been a good bet for investors over the past couple of years. Companies such as Michael Kors (NYSE: KORS  ) have banked tremendous growth with Asia as the vehicle to the stars. The problem is, many of these stocks are richly valued, with just a few appealing to value-oriented investors. This jeweler does not have the brand recognition or high-flying growth that Kors or some of the other luxury plays do, but its attractive pricing and market neglect may make it a winner in the coming months. Here's what you need to know about Signet Jewelers (NYSE: SIG  ) .

The company 
Though Signet may not have a name like Tiffany  (NYSE: TIF  ) -- synonymous with wealth and quality -- it is actually the world's largest jewelry retailer. The company is homed in on the middle market of the jewelry world, with brands like Jared and Kay in the U.S. and Ernest Jones in the U.K.

In recent earnings, the company beat Wall Street on the bottom line but came up short on sales. The stock has appreciated nearly 50% over the past two years, and is currently flirting with its 52-week high. Multiple value gurus hold sizable positions in the company, but is there still room to run in light of recent earnings?

Earnings and valuation 
For the first quarter, the company brought in an adjusted EPS of $1.13, $0.02 ahead of the Street's expectations. The EPS gain represents a near 18% jump over the prior year's quarter. The big winners were the U.S. brands, Jared and Kay, which showed 6% and 10.2% comparable-sales growth, respectively.

Revenues rose 10.4% to $993.6 million, short of expectations ($1.02 billion) but by no means a shabby statistic.

The company is still buying back shares, with $50 million worth purchased in the just-ended quarter. While stock buybacks are by no means a guaranteed way to enhance shareholder value, management was wise in this case as the stock has appreciated well.

Compared to other consumer luxuries, such as Kors or Tiffany, Signet is attractively valued, though offers less growth potential. The company trades at 12.75 forward one-year earnings, and has an EV/EBITDA of 10.47 times. For comparison, Kors now trades at nearly 21 times forward earnings, and has an EV/EBITDA of 19.23. Tiffany's trades at just under 20 times forward earnings and with an EV/EBITDA of 11.78.

Now, Signet is not the growth machine that Kors is, and does not directly benefit from the comeback of the wealthy, since its products are more middle tier. The same goes for Tiffany. But investors may want to take a closer look at the stock, as the balance sheet is in perfect condition with $300 million in cash and zero long-term debt, putting management in prime place to make well-thought-out, accretive acquisitions such as the recent Ultra purchase.

Though not the bargain it once was, Signet offers investors a more affordable luxury play, both in the stores and in your portfolio.

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