Today’s Daily Alert stock has a lot going for it. A 2.2% dividend yield should be attractive to conservative investors, while the stock’s strong performance in recent months gives it a momentum hook too. However, Validea analyst John Reese’s analysis, below, focuses on the company’s fundamentals-which are also great!
“Williams-Sonoma, Inc. (WSM $57 NYSE)-This San Francisco-based cookware and kitchen supply store, which also owns home products and furniture stores like Pottery Barn and West Elm, has nearly 600 stores across the U.S. and Canada. Earlier this year it announced a big boost to its dividend, as well as a significant share repurchase program.
“Sonoma ($5.4 billion market cap) gets strong interest from my Peter Lynch- and James O’Shaughnessy-based models. [And my] Price/Sales Investor strategy based on Kenneth Fisher [gives WSM a] Guru Score of 90%.
"[Under this methodology,] the prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between 0.75 and 1.5 are good values. WSM’s P/S ratio of 1.36 based on trailing 12 month sales falls within the ‘good values’ range for non-cyclical companies and is considered attractive.
“Less debt equals less risk according to this methodology. WSM’s Debt/Equity of 0.42% is acceptable, thus passing the test. ... This methodology looks for companies that have an inflation-adjusted EPS growth rate greater than 15%. WSM’s inflation-adjusted EPS growth rate of 41.93% passes the test.
“This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. WSM’s free cash per share of 0.70 passes this criterion.
“This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. WSM, whose three-year net profit margin averages 6.14%, passes this evaluation. ... We are adding [WSM] to the portfolio.”
John Reese, Validea Hot List Newsletter, www.validea.com,
877-439-0506, 5/10/13