As lovebirds around the world celebrate Valentine’s Day, investors may want to consider companies that profit from Cupid’s bow and arrows.
According to the National Retail Federation, the average U.S. consumer is expected to spend approximately $196.31 on Valentine’s presents for their significant others, children, teachers and classmates, coworkers, friends and even pets this year. This is up from last year’s record of $161.96. Total spending is projected to reach $27.4 billion, which is a 32% increase from $20.7 billion a year ago.
Of that, the annual survey found those celebrating the holiday plan to spend $5.8 billion on jewelry, $4.3 billion on an evening out, $2.9 billion on clothing, $2.3 billion on flowers, $2.4 billion on candy, $2 billion on gift cards and $1.3 billion on greeting cards.
Since jewelry is the largest category of spending for the holiday devoted to love, investors may be interested in finding value opportunities among retail companies that sell luxury goods. According to the GuruFocus All-in-One screener, a Premium feature, as of Feb. 13, companies in this space include Charles & Colvard Ltd. (CTHR, Financial), Fossil Group Inc. (FOSL, Financial), Movado Group Inc. (MOV, Financial), Signet Jewelers Ltd. (SIG, Financial) and Tiffany & Co. (TIF, Financial).
Charles & Colvard
Headquartered in Morrisville, North Carolina, the jeweler is known for producing and using moissanite, a man-made gemstone comparable to diamonds, in its selection of engagement and weddings bands, bracelets, earrings and necklaces. Charles & Colvard has a $28.72 million market cap; its shares were trading around $1 on Thursday with a price-earnings ratio of 11, a price-book ratio of 0.59 and a price-sales ratio of 0.76. Its low price ratios contribute to its GuruFocus valuation rank of 9 out of 10.
The Peter Lynch chart shows the stock is trading below its fair value, further suggesting it is undervalued.
Boosted by comfortable interest coverage and a high cash-debt ratio, Charles & Colvard’s financial strength was rated 9 out of 10 by GuruFocus. The Altman Z-Score of 2.66, however, warns the company is under some financial pressure since it has recorded a decline in revenue per share over the past 12 months.
The company’s profitability scored a 4 out of 10 rating, driven by margins and returns that outperform over half of its competitors. Charles & Colvard also has a moderate Piotroski F-Score of 6, which indicates its operations are stable, and a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
Jim Simons (Trades, Portfolio)’ Renaissance Technologies has a 2.51% stake in the company.
Fossil Group
While primarily known for its watches, the Richardson, Texas-based company also sells handbags, luggage and accessories. Fossil has a market cap of $330.38 million; its shares were trading around $6.51 on Thursday with a price-earnings ratio of 218.01, a price-book ratio of 0.64 and a price-sales ratio of 0.15.
According to the Peter Lynch chart, the stock is overvalued. Based off of its GuruFocus valuation rank of 9 out of 10, however, it is undervalued.
Despite being weighed down by debt and poor interest coverage, Fossil’s financial strength scored a 5 out of 10 rating. The Altman Z-Score of 2.39 suggests the company is under some financial pressure as it has recorded a decline in revenue per share over the past five years. In addition, its return on invested capital is less than its weighted average cost of capital, which indicates it may not be capital efficient.
The company’s profitability fared better, scoring a 7 out of 10 rating even though it has declining margins and returns that underperform a majority of industry peers. It also has a high Piotroski F-Score of 8, which implies operations are healthy, and a one-star business predictability rank.
With 2.63% of its outstanding shares, Simons’ firm is Fossil’s largest guru shareholder. Hotchkis & Wiley, Lee Ainslie (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Philippe Laffont (Trades, Portfolio) also have positions in the stock.
Movado Group
The high-end watchmaker, which is based in Paramus, New Jersey, is known for its signature metallic dot that marks 12 o’clock and minimalist style. Movado has a $386.94 million market cap; its shares traded around $16.83 on Thursday with a price-earnings ratio of 7, a price-book ratio of 0.75 and a price-sales ratio of 0.55. GuruFocus noted these ratios are near multiyear lows, contributing to a valuation rank of 9 out of 10.
Based on the Peter Lynch chart, the stock appears to be undervalued.
Movado’s financial strength and profitability were both rated 7 out of 10 by GuruFocus. Although the company has adequate interest coverage, the Altman Z-Score of 2.95 hints that it is under some financial pressure as its assets are building at a faster rate than its revenue is growing, suggesting it is becoming less efficient.
While the company’s operating margin is in decline, it still outperforms a majority of competitors. Movado is also supported by strong returns, a moderate Piotroski F-Score of 5 and a one-star business predictability rank.
Of the gurus invested in Movado, Hotchkis & Wiley has the largest position with a 1.4% stake. Other top shareholders include Simons’ firm, Chuck Royce (Trades, Portfolio), John Rogers (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss and Jeremy Grantham (Trades, Portfolio).
Signet Jewelers
As the world’s largest retailer of diamond jewelry, the Bermuda-based company has several well-known brands under its umbrella, including Kay Jewelers, Zales and Jared The Galleria of Jewelry. Signet has a market cap of $1.39 billion; its shares were trading around $26.59 on Thursday with a price-book ratio of 1.33 and a price-sales ratio of 0.22. Despite being near one-year highs, the ratios do not offset the GuruFocus valuation rank of 10 out of 10.
The median price-sales chart shows the stock is trading below its historical average, suggesting it is undervalued.
GuruFocus rated Signet’s financial strength 4 out of 10. Although it has sufficient interest coverage, the Altman Z-Score of 1.9 indicates the company is under some financial stress as its Sloan ratio implies poor earnings quality. In addition, the company may be becoming less efficient since its WACC outweighs its ROIC.
The company’s profitability scored a 7 out of 10 rating despite having declining margins and negative returns that underperform a majority of industry peers. Signet is supported by a moderate Piotroski F-Score of 4 and a one-star business predictability rank.
Sarah Ketterer (Trades, Portfolio) is Signet Jewelers’ largest guru shareholder with a 4.84% stake. Ainslie and Greenblatt also own the stock.
Tiffany
The iconic New York jeweler favored by Audrey Hepburn’s character in the movie “Breakfast at Tiffany’s” also sells glass lamps, sterling silver, china, crystal, stationery, fragrances, water bottles, watches, personal accessories and leather goods. The company’s pending merger with LVMH Moët Hennessy-Louis Vuitton (XPAR:MC, Financial) was approved by shareholders last week. The $16.2 billion deal is expected to close in mid-2020. Tiffany has a $16.27 billion market cap; its shares were trading around $134.30 on Thursday with a price-earnings ratio of 30.06, a price-book ratio of 5.15 and a price-sales ratio of 3.72. The high demand for its shares due to the acquisition coupled with price ratios near 10-year highs gives the company a low GuruFocus valuation rank of 1 out of 10.
According to the Peter Lynch chart, the stock is overvalued.
Tiffany’s financial strength was rated 6 out of 10 by GuruFocus, driven by sufficient interest coverage and a robust Altman Z-Score of 5.2, which suggests the company is in good financial health.
The jeweler’s profitability scored an 8 out of 10 rating on the back of strong margins and returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6. As a result of recording a slowdown in revenue per share growth over the past year, Tiffany’s two-star business predictability rank is on watch. GuruFocus says companies with this rank typically see their stocks gain an average of 6% per year.
With a 5.28% stake, Steve Mandel (Trades, Portfolio) is Tiffany’s largest guru shareholder. Other gurus set to benefit from the acquisition include First Eagle Investment (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Ron Baron (Trades, Portfolio), Grantham, John Rogers (Trades, Portfolio), Greenblatt, PRIMECAP Management (Trades, Portfolio) and Laffont.
Disclosure: Author owns shares of Tiffany & Co.
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