This stock value just dropped. Is it worth buying the dip?

In its first quarter earnings report, Jewelers signet ring (NYSE: SIG) he seemed to be successfully implementing his business plan. The world’s largest diamond jewelry retailer has successfully demonstrated that it is reinventing its business, increasing margins and leveraging its competitive advantages such as the digital channel and customer loyalty. He also sparked investor enthusiasm when he announced a plan to repurchase convertible preferred stock in April, raising his earnings per share forecast for this year by about 10%. At the time of the update, shares were trading at five-year highs.

However, this momentum disappeared with the release of the results report. Signet shares fell 14.9% on Thursday after reporting results that beat estimates but also showed some signs of weakness that appeared to spook investors. For example, same-store sales declined 8.9% year-over-year in the first quarter due to macroeconomic challenges, weak consumer health, a slow start to the quarter and a competitive environment with heavy discounting.

As a result, revenue declined 9.4% year-over-year to $1.51 billion, in line with analyst estimates and the company’s own guidance. However, profits fell sharply as revenues declined, as adjusted operating income fell from $106.5 million to $57.8 million. The company reported adjusted earnings per share of $1.11, compared with $1.78 in the year-ago quarter.

This lower result exceeded the analyst consensus of $0.85. Signet’s guidance was also in line with expectations. What seemed to spook the market was CEO Virginia Drosos’ comment on the possibility of continued increased competitive discounting in the second half of 2024.

Good news for Signet

Given the company’s broader competitive position and future prospects, the discount seems excessive. Signet’s results improved during the quarter, and Signet’s guidance requires this momentum to continue. The company expects same-store sales to return to positive growth in the second half of the year, driven by several factors, including order growth and success in the fashion industry with lab-grown diamonds.

In the fashion industry, which includes everything not related to wedding dresses, sales from March to May were up 500 basis points compared to February and the fourth quarter. The development of lab-grown diamonds has been a key factor in this strength. Chief Financial Officer Joan Hilson noted in an interview that the company saw a 14% increase in revenue from fashion products, including lab-made diamonds (LCDs), by taking advantage of their lower price point. Hilson added: “LCD enables us to deliver fashion to our customers at lower prices, but this in turn results in a higher price point in our assortment.”

The story continues

Meanwhile, there appears to be a long-awaited comeback in the wedding industry. Growth in engagement units sold is expected to be moderately positive in the second quarter and significantly positive in the second half of the year.

Finally, the company is improving its debt repayment balance and its preferred stock repurchase program should continue to deliver results next year. Interest rates should start to fall next year, which should encourage consumers to spend more and provide some relief to finance customers.

Is Signet a purchase?

Apart from the poor first quarter results, Signet’s prospects look essentially the same as before the results were published, with the difference that the company’s shares are now 15% cheaper. The company is poised to take advantage of a recovery in marriage engagements after a decline during the pandemic and a 10% increase in earnings forecasts since April.

As a result, Signet shares are currently trading at a forward price to earnings (P/E) of 8.6. The industry leader stock is benefiting from aggressive share repurchases, a recovery in engagement and an expected return to growth in the second half of the year.

Investors should forget about the weaknesses in the first quarter and take advantage of the recent sale of Signet shares.

Is it worth investing $1,000 at Signet Jewelers now?

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Jeremy Bowman has no position in any of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This stock value just dropped. Is it worth buying the dip? was originally published by The Motley Fool