As part of our ongoing series here at The Acquirer’s Multiple, each week we focus on one of the stocks from our Stock Screeners, and why it’s possibly a deeply undervalued gem.

The Stock this week is:

Signet Jewelers Ltd (SIG)

Signet Jewelers Ltd is a retailer of diamond jewelry. Its merchandise mix includes bridal, fashion, watches and others. The bridal category includes engagement, wedding and anniversary purchases. Its segments are the North America segment, the International segment, and the Other segment. The North America segment contributes to the majority of the revenue. The North America segment generates revenue from Mall and Off-mall & Outlet.

A quick look at the share price history (below) over the past twelve months shows that the price is down 41.58%.

Source: Google Finance

One of the metrics we use in our screens is IV/P (Intrinsic Value to Price). Let us simplify what it means:

IV/P (Intrinsic Value to Price) tells you if a stock is a good deal or not based on how much value you’re getting for the price you pay. Here’s how it works:

1. The Calculation: It adds up the stock’s ability to make money (Earning Power), grow (Incremental Growth), and pay back investors (Shareholder Yield). This gives you an idea of what the stock is really worth, called its Implied Value.
2. The Meaning of IV/P:
   • If IV/P is greater than 1, it means you’re getting more value than you’re paying for. For example, for every $1 you invest, you’re getting more than $1 of value. That’s a good deal!
   • If IV/P is less than 1, it means you’re getting less value than you’re paying for. For example, for every $1 you invest, you’re getting less than $1 of value. That might not be a great deal.
3. What It’s Used For:
   • It’s a quick way to spot undervalued stocks (good deals).
   • If IV/P is very low, like 0.6 (you’re only getting 60 cents of value for $1), it’s likely overpriced.
4. Important Note: This is just an estimate. Other factors, like market trends or company issues, can affect how accurate this is.

So, IV/P helps investors find stocks that are “cheap” based on how much value they give back. Higher is usually better!

We currently have an IV/P of 1.6 for the company, which means the stock’s Implied Value is calculated to be 1.6 times greater than its current price. In simpler terms:

• For every $1 you invest, you’re potentially getting $1.60 of value.
• This is an great ratio, which might suggest the stock is deeply undervalued or that there’s some mispricing or unusual calculation in the data.

Possible Reasons for This Undervaluation:

1. Resilience in the U.S. Luxury Market: Despite global economic challenges, the U.S. luxury market has shown signs of recovery. Companies like Richemont, the owner of Cartier, have reported better-than-expected performance, indicating a potential uptick in consumer spending on luxury goods.

2. Shifts in Consumer Preferences: There is a growing trend towards unique and personalized jewelry pieces, such as brown diamonds, which have seen a significant price increase due to rising demand. This shift aligns with Signet’s product offerings, potentially enhancing its market position.

3. Emphasis on Sustainability: Consumers are increasingly prioritizing sustainability in their purchasing decisions. The jewelry industry is responding by focusing on ethical sourcing and environmental responsibility, trends that companies like Signet can leverage to attract conscientious consumers.

4. Digital Transformation in Retail: The acceleration of e-commerce and digital platforms has transformed the retail landscape. Retailers embracing digital strategies are better positioned to capture online consumer spending, a factor that can contribute to Signet’s growth if effectively implemented.

These macroeconomic factors suggest that Signet Jewelers Ltd. has opportunities to capitalize on market trends, potentially indicating that the company is undervalued in the current economic climate.

We currently have the company on an Acquirer’s Multiple of 6.80, ROA 5-Year Average of 10%, a BuyBack Yield of 36.70%, and a FCF Yield of 15.95%.

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