Image source: Tiffany & Co.

The first bullet point in a presentation that Tiffany (TIF) just gave investors neatly sums up why the stock has slumped lately. "2015 financial results were disappointing," it read.

Yes, they were. The jewelry giant's sales fell by 3% last year, compared with the slight increase that management initially forecast back in March. Tiffany's operating margin also declined, which sent net income down by a steeper 4% to $464 million.

The resulting pessimism on Wall Street has pushed shares to 17 times expected earnings to mark one of its lowest valuations in years. Let's look at whether that collapse is a chance to buy a strong jewelry brand on the cheap -- or a sign of yet more underperformance ahead for the stock.

The bad news

The first thing to understand is that much of Tiffany's recent struggles have to do with industrywide issues – and not market share losses or missteps by the executive team. Economic challenges such as weakening currencies and lower oil prices pinched demand for jewelry sales both in the U.S. and internationally.

Those negative trends hurt all market participants, including online seller Blue Nile (NILE), which saw its sales growth decelerate in 2015 thanks to what management described as "weakness from high-ticket purchases and foreign currencies, as well as lower selling prices for core engagement products."

Tiffany's operations have been hurt in much the same way. Average prices for its engagement jewelry products dove to $3,300 in fiscal 2015 from $3,600 in each of the prior two years.

The good news

On the plus side, the jeweler's high-end products performed well in this tough environment. Average spending in the fine and statement jewels category grew to $5,700 last year from $5,400 in 2014, which suggests Tiffany still commands serious pricing authority in diamonds. And here's more evidence that its brand remains strong: Tiffany's gross profit margin improved last year to 61% of sales -- three times Blue Nile's profitability.

TIF Gross Profit Margin (TTM) Chart

TIF Gross Profit Margin (TTM) data by YCharts

Meanwhile, even as management missed the 2015 sales forecast, it exceeded the company's cash flow goal. Free cash spiked higher by 50% despite a solid increase in spending on the business. That financial success provides a strong foundation for Tiffany's dividend, which is why investors can expect continued growth (in line with profit gains) in a payout that was recently raised by 13%.

Can Tiffany turn things around?

Industry issues are sure to keep intense pressure on operating results for the time being. Tiffany last posted a brutal 10% comparable-store-sales decline in its U.S. locations and a 12% dip in the key Asia-Pacific market. "As expected, this was a difficult quarter in terms of both sales and earnings growth," CEO Frederic Cumenal explained in a press release. Cumenal and his team now project 2016 as marking Tiffany's second straight year of lower profits

Still, the bright spots from last year are again showing up in these latest numbers. Average selling prices are up, and gross profit is headed higher. On that strength, investors with a long time horizon should consider this stock for their watch lists. Sure, lots of patience will be required as shareholders wait for industry trends to improve. But Tiffany's brand is holding up well through the economic challenges, and its business should emerge from the downturn in a good position to return to its prior pace of near double-digit annual profit growth.