Signet Jewelers (SIG -0.20%) doesn't get much attention on Wall Street, but the jewelry stock has crushed the market over the last three years. The shares are up nearly 300% since the start of 2020, while the S&P 500 has only delivered a modest gain during that time as the chart below shows.

SIG Chart

SIG data by YCharts.

The combination of a new management team, a revamped omnichannel strategy, and smart acquisitions has boosted profits and set the company on a long-term growth path.

Management took the opportunity to tout its accomplishments and make the case for the stock last Tuesday at an Investor Day event. Investors seemed to like what the company had to say as the stock rose 3.6% on Tuesday and tacked on another 1% on Wednesday.

The company also laid out a roadmap for the next few years. Let's take a look at what the company had to say and where it will be in three years.

A parent putting a necklace on their daughter.

Image source: Getty Images.

Engagement tailwinds are returning

Signet just reported a decline in sales in its fourth quarter and flat sales for fiscal 2023, which ended in January. The company is facing similar headwinds to other consumer-facing businesses, including difficult comparisons with the boom in 2021 when consumers were flush with cash and the shift  in spending habits to services like travel and restaurants. 

The company is also guiding for a modest decline in sales this year as those trends continue. But there's another hidden reason for those headwinds.

Engagements have declined because the formation of new relationships was delayed by the pandemic. But that trend is expected to reverse by the end of the year and become a tailwind over the next few years that will support the company's growth as half of its revenue comes from engagement and bridal purchases.

The company expects a 20% to 25% recovery in the bridal category in calendar 2024 through 2026. The bridal channel also tends to be recession proof as couples get married and spend on engagement rings and wedding bands regardless of the state of the economy, which should support the company even if the economy falls into a recession

Revamping its real estate

Signet, the world's biggest retailer of diamond jewelry and the parent of banners like Kay, Jared, and Zales, has also been focused on overhauling its real estate footprint.  The company has been closing down underperforming stores and shifting its base away from malls, finding better traffic in outlet centers.

Over the last five years, the company has closed 21% of its stores, finishing 2023 with 2,808 stores, and 40% of its stores are now in the off-mall channel, bringing in more than 50% of its sales. It's also integrated its stores with its digital platform and is leveraging its real estate by offering high-margin services like repairs and warranties as well.

Raising the bar

The company now expects to grow annual revenue from $7.8 billion to $9 billion to $10 billion over the coming years, with $600 million coming from the engagement tailwinds and growth from its larger banners like Kay and Zales. 

Signet also expects to see $1 billion in growth from its accessible luxury segment, which includes Jared, Diamonds Direct, James Allen, and Blue Nile, driven by store expansion and digital improvements. Accessible luxury is generally defined as pieces that sell for between $1,000 and $3,000.

Finally, management sees the opportunity to grow its services business by another $500 million to $1.2 billion, and anticipates $450 million in additional sales from the digital channel.

On the bottom line, the company updated its adjusted long-term operating margin guidance to 11% to 12% and its earnings-per-share (EPS) range to $14 to $16, not including share buybacks. That's up from $11.80 in EPS last year.

Is it a buy?

Throughout the Investor Day conference, management made the case that the stock was undervalued -- and with the shares trading at a price-to-earnings (P/E) ratio of less than 7, it's hard to disagree with that assessment.

Wall Street still seems to be skeptical that the company can deliver steady growth, but Signet is competing in a highly fragmented market, giving it advantages like scale and technology, and it's already gained significant market share under the new management team.

If the company can execute on the goals outlined in the conference, the stock should have a lot more room to run. Additionally, its current price makes the downside risk limited.

While 2023 might be a challenging year, a recovery in the engagement business should make the stock a winner over the coming years.