Since sales of $4.98 on its first day of operations in New York in 1837, Tiffany & Co. (NYSE:TIF) has been expanding globally, selling namesake silver and jewelry in its famous little blue boxes. Indeed, fiscal 2005 sales just clocked in at $2.4 billion. Because of an enviable history and track record as a public company, it's worth taking a further peek into the stock's investment merits and key drivers of operations.

For the quarter and year ended Jan. 31, net sales grew 6% quarter over quarter and 9% year over year. Net income declined but was due to a one-time gain in previous-year results. Analysts in general were pleased with sales trends in Japan, the company's largest international market, which represents about 20% of sales. The holiday season in the U.S. was seen as strong, but results so far in 2006 have been somewhat soft, causing a slight decrease in consensus estimates for the year. Sales at its flagship New York City store, which represents 10% of the company's total sales, fell a somewhat disappointing 2%. The company now expects annual EPS in the range of $1.77 to $1.82. Based on the current price of $37.52, this represents a P/E of about 21 times.

A former graduate-school finance professor once taught me that there are usually three or four key investment considerations that drive a stock. Identifying these factors can be a challenge at times, but once identified, they can prove invaluable in helping discern which direction a stock price may go. For Tiffany, key drivers include sales trends in Japan, comparable sales trends (a key metric for all retail stocks) at all of its stores, new store expansion, and margins. The last item assists in determining profitability and offers insight into raw materials costs (e.g., silver and diamonds), which have been increasing rapidly over the past 12 to 18 months on account of overall commodity-pricing inflation. All key drivers are currently satisfactory, with overall sales strength currently enough to offset a spike in raw materials costs.

Tiffany has a strong historical track record, with sales growth near 9% and EPS growth of about 16% over the past five years, and 12% and 24% over the past 10 years, respectively. With only 150 stores worldwide, growth opportunities going forward still look compelling. The jeweler also has high returns on equity and capital when considering net income. Operating cash flow is largely used up on capital expenditure as the company expands its store base, leaving free cash flow negligible. However, this is normal for a growing company and advisable if profitable growth opportunities can be found, as is the case for Tiffany. Growth is mostly supported via internally generated funds, leaving a relatively low debt-to-capital ratio; it's currently around 22%.

Tiffany represents one of those great retail companies that, much like its merchandise, will rarely if ever trade at a bargain price. However, it can occasionally be had at a fair price, so keep an eye out. The stock is trading somewhat off its 52-week high, but I would suggest a larger margin of safety before picking up the shares. Analysts appear to agree for the most part, since most of them call the stock a hold.

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Fool contributor Ryan Fuhrmann has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).