Stock Review of the Day
Stock: WSM (Williams-Sonoma)
Summary: OVERPRICED

Score: 8/20
MOS: 94%
Share Price: $92
Sticker Price: $47

Williams-Sonoma, Inc. is a retail company that sells kitchen-wares and home furnishings. It’s headquartered in San Francisco, CA and has 625 brick and mortar stores and distributes to more than 60 countries with brands including Pottery Barn, Pottery Barn Kids, PBteen, Williams Sonoma, Williams Sonoma Home, West Elm, Mark and Graham, and Rejuvenation.

I recently read an article on why Williams-Sonoma is a good BUY.  This is a perfect example of using emotions and lack of data to make investments.

Here is that WHY…

1. Customers love the product
2. It has a P/E of 20
3. It has room to grow

Let’s define this…

1. “Customers love the product.” Really? This is a 100% emotional reason. We can’t rely on this. It’s like saying Chipotle burritos are fantastic and so is the stock.

2. “It has a P/E of 20.” A P/E Ratio (Price to Earnings Ratio) of 20 doesn’t mean a whole lot. P/E Ratio is calculated by taking the Share Price divided by the EPS (Earnings Per Share).

Generally speaking, a high P/E indicates that investors expect higher earnings. However, a stock with a high P/E is not necessarily a better investment than one with a lower P/E, as a high P/E ratio can indicate that the stock is being overvalued. On the flip side, when a company’s stock has a low P/E, it may indicate that the stock is undervalued. Investors can often buy undervalued stock at a discount and then profit when the price of that stock climbs. That said, sometimes a low P/E reflects a genuine lack of growth potential.

In other words, P/E ratio can be good or bad, no matter what the number is. That doesn’t help you or I. That’s why we don’t care about P/E. Also keep in mind, P/E is a calculation of 2 variables. To compare, TYKR determines if a stock is ON SALE, WATCH, or OVERPRICED based on 50 variables.

3. “It has room to grow.” Williams-Sonoma had a 2019 annual revenue of $5.9B and the total market is approximately $330B. The “total market” is the sum of all spending in the kitchen-ware industry. This reason is not a good reason to invest. If a market is big, doesn’t mean the stock will grow within that market.

Overall, Williams-Sonoma has a score of 8/20 which tells us the financial strength of the company is weak. Also note the share price of $92 and the sticker price of $47 shows us that this stock may be on the way down.

What do you think?

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All stock reviews are for entertainment purposes only. Reviews are not financial advice.