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Can Williams-Sonoma’s Q1 Earnings Boost Its Stock Price?

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Stock performance

As of May 24, Williams-Sonoma (WSM) was trading at $52.08, which represents a fall of 8.4% since the announcement of its fourth-quarter earnings on March 20.

In the fourth quarter, Williams-Sonoma had outperformed analysts’ revenue and EPS estimates. After reporting its fourth-quarter earnings, WSM’s management set EPS guidance of $4.50–$4.70 and revenue guidance of $5.67 billion–$5.84 billion for 2019, which surpassed both analysts’ EPS and revenue estimates. The strong first-quarter earnings and better-than-expected 2019 guidance led to a rise in the company’s stock price. However, the renewed trade tensions between the US and China have been putting pressure on the company’s stock price.

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Year-to-date performance

Despite the recent fall in its stock price, Williams-Sonoma has returned 3.2% YTD. However, the company has been lagging the broader equity market this year, where the S&P 500 Index has returned 12.7% YTD. In comparison, WSM’s peer Bed Bath & Beyond (BBBY) and RH (RH) have returned 22.4% and -25.7%, during the same period, respectively.

Valuation multiple

The fall in WSM’s stock price since the announcement of its fourth-quarter earnings have also lowered its valuation multiple. As of May 24, the company was trading at a forward PE multiple of 11.2x compared to 12.7x before the announcement of its first-quarter earnings. On the same day, its peers BBBY and RH were trading at a forward PE multiple of 6.9x and 10.2x, respectively.

Also, WSM was trading at 11.3 times analysts’ 2019 EPS estimate of $4.60, and 10.8 times analysts’ 2020 EPS estimate of $4.80 with its EPS expected to grow at 3.0% in 2019 and 4.5% in 2020.

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