Top Retailer Near Buy Point After Big Dividend Hike

William-Sonoma (WSM), featured in today’s IBD 50 Stocks To Watch, continues to outperform amid the work-from-home trend spurred by the Covid-19 pandemic.


Meanwhile, investors are reaping the benefits as the company hikes its dividend and the stock has run up more than 70% this year. In August, Williams-Sonoma boosted its quarterly dividend by 20% to 71 cents a share. It also approved a new $1.25 billion stock buyback plan.

On Aug. 26, the San Francisco-based home furnishings retailer reported Q2 adjusted earnings that soared 80% to $3.24 a share on a 31% sales jump to nearly $1.95 billion. The company raised its full-year revenue growth outlook to a range from the high teens to low 20s and operating margins of 16%-17%.

“We do not see any evidence that growth trends are waning. And in fact, we see favorability in the macro environment as more people prioritize their homes and home decor,” CEO Laura Alber said on the earnings call. “We believe we are at the intersection of a transformative change that will accelerate the growth of our industry and our market share within the industry.”

The number of remote hybrid workers is expected to almost double in five years from the pre-pandemic metrics, she added. These trends could contribute to Williams-Sonoma’s status as one of the top growth stocks to watch.

Stocks To Watch: Retail Ratings Leader

IBD Stock Checkup assigns Williams-Sonoma a 92 Composite Rating, which gives investors a quick way to gauge a stock’s key growth traits. That leads the 17-stock home furnishings retail group, which includes RH (RH) and Lovesac (LOVE).

A 97 Earnings Per Share Rating, part of the overall composite score, also ranks it among the top stocks to watch in the group. Williams-Sonoma has a five year-compound earnings growth rate of 25%. Analysts expect EPS to jump 49% in the current fiscal year 2022, which ends in January, before a 5% slip in fiscal 2023. After a 9% decline in the quarter that ended in April 2020, the retailer has bounced back with 80% or higher quarterly profit gains.

On the technical front, a 90 Relative Strength Rating puts Williams-Sonoma in the top 10% of all stocks. Its relative strength line, which compares a stock’s performance to the S&P 500, is close to record highs. An upturn to new highs at or ahead of a potential breakout would send a bullish sign.

WSM stock is working on a double-bottom base with a 195.19 buy point, according to MarketSmith chart analysis. It’s about 5% away from the entry.

A caveat: The double bottom took shape right after a failed breakout from a third-stage cup base, so the current pattern is also considered third stage. While not exactly a late-stage base, gains from the next breakout may not be as large as from earlier bases.

Follow Nancy Gondo on Twitter at @IBD_NGondo


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