Betting on the Diamond Industry with Signet Jewelers Stock

SIG has tacked on 77% in the last 12 months

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Signet Jewelers Limited (NYSE:SIG) is the world's largest diamond jewelry retailer operates approximately 3,300 international stores, including name brands like Kay Jewelers, Zales, Jared, H.Samuel, Ernest Jones, Peoples Jewellers, Piercing Pagoda, and JamesAllen.com. Off the back of four consecutive earnings beats, Signet Jewelers will be reporting its fourth-quarter earnings this week on December 3 before the opening bell. The company will be looking to inch closer to profitability after its earnings tumbled as a result of the coronavirus pandemic.

Signet Jewelers stock is up a massive 77% year-over-year. The shares have more than quadrupled off their record lows below $6 from March, and scored an annual high of $32.22 as recently as Nov. 24. Since early August, SIG's channel of higher highs has seen pullbacks caught by its ascending 30-day moving average.

SIG Stock Chart

Signet Jewelers has beat expectations on all of its four most recent quarterly earnings reports. In the fourth quarter of 2019, Signet Jewelers beat expectations by $0.32. In the first quarter of 2020, the company beat expectations by a margin of $0.20. Even a second-quarter loss of -$1.59 for SIG stock still beat expectations by a large margin of $1.23. In its most recent quarterly report, the company beat its earnings target by $0.94. For Thursday morning's report, Signet Jewelers is expected to report a loss of -$0.71.

Signet Jewelers last paid a dividend of $0.37 in the first quarter of 2020. Prior to the coronavirus pandemic, the company had consistently grown its dividend since 2011.

Signet Jewelers stock is, at the very least, a gamble for long-term investors. The diamond industry as a whole has been on the decline for years, but is unlikely to vanish altogether. Despite the risks, there still lies a decent chance that Signet Jewelers stock continues running up after its massive bearish form.

After half a decade of bearishness, Signet Jewelers stock might have finally bottomed out back in March, and has thus now entered a recovery phase. Although the company is still generating net losses, Signet Jewelers stock has soared in price over the past few months. However, Signet Jewelers stock still seems to be a mixed bag from a fundamentals perspective. Although some of the negative marks the company presents are because of the pandemic, there are a few other worrisome details. Aside from its massive revenue drop for the current year, Signet Jewelers' revenue has been on the decline since at least 2016. The company has also been very inconsistent with its net income. Ultimately, Signet Jewelers has experienced huge losses in net profit for the past few years.

On the flipside, the company currently holds a respectable balance sheet. Signet Jewelers has $1.2 billion in cash and $3 billion in debt. Its price-to-book value ratio is 1.80, which means the company’s stock trades very close to its actual value in equity. Furthermore, Signet Jewelers stock has an amazing forward price-earnings ratio of 5.97.

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