A big beat

Tiffany (TIF) reported stronger-than-expected fiscal second-quarter[1. Its fiscal second quarter ended July 31.] earnings on August 28. Its earnings exceeded analysts’ expectation by 16%. However, despite the company’s big beat, TIF stock inched up only 0.9% and closed at $131.07.

That might surprise some investors since the company has now reported strong key metrics (comps, gross margins, and earnings) in the first two quarters of fiscal 2018. What else could we ask for?

TIF stock has risen 28% since it reported stellar fiscal first-quarter earnings on May 23, with most of the positives priced in. But the company’s high valuation makes us cautious.

Tiffany’s Fiscal Q2 Results Are a Big Beat, but What’s Its Upside?

Tiffany stock is trading at a forward PE multiple of 26.2x, which is 22% higher than its four-year historical average multiple of 21.4x. It’s also trading at a significant premium to Signet Jewelers (SIG) and the broader markets. On August 28, Signet Jewelers stock was trading at a forward PE multiple of 15.1x, while the S&P 500 was trading at 17.7x.

Stock performance

Tiffany stock is up 26.1% YTD (year-to-date) and has outperformed the S&P 500, which is up 8.4%. TIF’s strong financial performance led by higher comps, margin expansion, and double-digit growth in EPS drove the stock.

Rival Signet Jewelers stock also marked a strong rebound in the past couple of months. However, its losing steam before its fiscal Q2 earnings and is down 2.6% YTD.

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