What happened

Shares of Signet Jewelers (NYSE:SIG) were down 14.8% as of 11:00 a.m. EST Thursday after analysts at Wells Fargo (NYSE:WFC) downgraded the parent company of jewelry chains including Kay, Zales, Jared, and Piercing Pagoda.

So what

More specifically, Wells Fargo's Ike Boruchow lowered his rating on Signet stock to underweight from equal weight, simultaneously reducing his per-share price target to $12 from $16 -- a steep discount from its previous close at $21.74 per share.

Diamond held in jeweler's tweezers.


It likely didn't help that Signet shares rallied 25% last month -- a swift move upward spurred by the company's better-than-expected fiscal third-quarter 2020 results. To be fair, while those results handily outpaced analysts' consensus expectations, they weren't exactly stellar at a glance; revenue declined 0.3% (as store closures offset a modest 2.1% increase in same-store sales), translating to an adjusted net loss of $0.76 per share.

But Boruchow wasn't impressed, pointing to Signet's "very challenging" year, in which it battled tariffs and difficult year-over-year comparisons while working to implement its "Path to Brilliance" transformation plan. He further argued Signet's core business continues to face challenges, particularly as its credit segment remains "an overhang" to its consolidated results.

Now what

If the timing of Signet's past releases is any indication, investors could receive fresh color on its progress later this month as the company details its performance during the crucial fiscal 2020 holiday season.

Given its rapid gains last month and these words of caution from Wall Street in the meantime, however, it's no surprise to see shares of this consumer discretionary stock pulling back hard today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.