Williams-Sonoma Inc (WSM, Financial) has recently witnessed a daily gain of 6.25% and a 3-month gain of 17.44%. With an Earnings Per Share (EPS) of 14.47, the question arises: Is the stock fairly valued? This article aims to answer this question by providing a comprehensive valuation analysis of Williams-Sonoma Inc.
Company Overview
Williams-Sonoma Inc, a leader in the $300 billion domestic home category, boasts a wide retail and direct-to-consumer presence. The company aims to expand its exposure in the B2B, marketplace, and franchise areas. With its stock price currently at $148.76 and a GF Value of $162.36, Williams-Sonoma Inc presents a compelling case for a valuation study.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
Williams-Sonoma (WSM, Financial) is believed to be fairly valued according to the GF Value. This estimation is based on historical multiples, an internal adjustment factor, and future business performance estimates. If the share price is significantly above the GF Value Line, the stock may be overvalued and likely to offer poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and offer higher future returns. Williams-Sonoma's current share price of $148.76 suggests that the stock is fairly valued.
Given that Williams-Sonoma is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Examining Financial Strength
It's crucial to evaluate the financial strength of a company before investing in its stock. Investing in companies with poor financial strength carries a higher risk of permanent loss. By looking at the cash-to-debt ratio and interest coverage, we can gauge the financial strength of Williams-Sonoma. With a cash-to-debt ratio of 0.37, which is worse than 55.68% of 1101 companies in the Retail - Cyclical industry, Williams-Sonoma's overall financial strength is rated 6 out of 10, indicating that it is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially if they have demonstrated consistent profitability over the long term. Williams-Sonoma, with high profit margins, offers better performance potential than a company with low profit margins. The company has been profitable 10 years over the past 10 years, with revenues of $8.30 billion and Earnings Per Share (EPS) of $14.47 over the past 12 months. Its operating margin of 15.49% is better than 88.88% of 1115 companies in the Retail - Cyclical industry. GuruFocus ranks Williams-Sonoma's profitability as strong.
Growth is a critical factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Williams-Sonoma is 19%, which ranks better than 81.39% of 1048 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 44.3%, which ranks better than 88.5% of 896 companies in the same industry.
Evaluating ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Williams-Sonoma's ROIC was 28.56, while its WACC came in at 10.74.
Conclusion
In conclusion, the stock of Williams-Sonoma (WSM, Financial) is believed to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 88.5% of 896 companies in the Retail - Cyclical industry. To learn more about Williams-Sonoma stock, you can check out its 30-Year Financials here.
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