Signet (NYSE:SIG) stock reports its earnings on Wednesday before the opening bell. The Bermuda-based diamond jewelry retailer experienced a rough start to the year as the company guided lower and delayed this upcoming earnings report. This added to the woes the company has faced since SIG stock started moving downward in the middle part of the decade.
For Signet stock to become a buy again, the company will not only need an upside surprise, but will also need to show signs of a sustained rebound.
For Q4, Wall Street forecasts earnings of $3.82 per share. If this holds, it will represent a decline of over 9.5% from year-ago levels. Predicted Q4 revenues of $2.14 billion also would mean a 6.5% decline from the same quarter last year.
The company will also report full-year earnings for FY 2019. Analysts predict a profit of $3.57 per share, well below FY 2018 levels of $6.51 per share. They also forecast $6.1 billion in revenue for 2019. The company brought in $6.24 billion in FY 2018.
Amid Issues, SIG Stock Offers Low Multiples, High Dividends
Admittedly, the fundamentals look appealing at first glance. The forward price-to-earnings (P/E) ratio of 8.9 could draw some investors by itself. Seeing SIG stock trade at 0.22 times sales and just 1.07 times its book value adds to the perception of its reasonable valuation.
Moreover, the company pays a generous dividend. The annual payout of $1.48 per share amounts to a yield of around 5.3%. This dividend has also increased every year since the company first initiated payouts in 2011.
However, beyond these attributes, more concerning trends have appeared. As mentioned earlier, analysts expect both revenue and earnings to come in lower. Unfortunately for SIG stock bulls, the revenue slide began in 2016 and earnings peaked in 2017 before moving the other direction. Analysts predict that these trends will continue through at least fiscal 2020.
The Years of Struggle for Signet Continue
This also adds to a SIG stock downtrend which began in late 2015. At that time, the share price briefly exceeded $152 per share. Now, in the $28 per share range, SIG trades at levels it first saw in 2003! This has occurred in an environment where archrival Tiffany (NYSE:TIF) continues to grow amid competition from the likes of Costco (NASDAQ:COST) or small jewelers who sell on sites such as Etsy (NASDAQ:ETSY).
Moreover, the company has reported some disappointing news in recent months. On Jan. 17, SIG stock plunged by 24.7% as the company warned that same-store sales fell by 1.3% from levels of the previous year. Following that report, analysts predicted a drop between 1.6% and 2.5% for the fourth quarter.
During that report, they also guided lower on profits. The new guidance of $3.77 to $3.92 per share came in much lower than previous estimates of $4.46 per share. For the fiscal year, earnings estimates fell from $4.25 per share to a range between $3.53 and $3.69 per share.
Then in February, SIG announced they had pushed back their earnings date to April 3. They cited the need for more time to research a non-cash impairment charge related to both goodwill and intangible assets.
SIG stock beat estimates in each of its four previous reports. Since the company already reduced expectations, I would assume higher revenues and earnings than analysts expect. Still, with investors used to the company beating estimates, inspiring a turnaround will take more.
The Bottom Line on SIG Stock
Going into earnings, SIG stock remains dead money until signs of a sustained turnaround emerge. The company’s low P/E ratio and high dividend yield could draw investors. However, with Signet stock in a long-term downtrend that has erased more than 80% of its value, many could still remain wary until they see increases in Signet stock.
At some point, the low P/E ratio and the increasingly generous payout will make SIG a buy. The five-year profit forecast predicts average growth of 7% per year over the next five years. Also, at least one analyst predicts an increase in profits for 2021. Perhaps investors should buy SIG stock at that time.
Still, I do not see the stock recovering for now. Until the company shows signs of reversing its revenue and earnings declines, Signet stock should stay off investor buy lists, both before and after earnings.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.