Is It Too Late to Buy Signet Jewelers Stock?

There have been very few stocks within the consumer goods sector that have performed better than Signet Jewelers (NYSE: SIG) lately.

The diamond and fine jewelry conglomerate owns many of the household brands and retailers that are in malls and shopping centers across the country, including Zales, Kay Jewelers, Jared, and Pagoda, as well as online jewelry sellers like Blue Nile and Diamonds Direct, among many other brands. Overall, Signet has some 2,600 retail locations around the world.

The luxury brand company has been firing on all cylinders over the past year. In the most recent quarter ended Nov. 1, Signet grew same-store sales and net sales by 3% year over year. It destroyed earnings estimates for the quarter, with adjusted earnings rising some 162% in the quarter.

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Over the past 12 months, Signet stock has returned some 92% and it is already up 17% year to date.

One of the factors that has boosted Signet's earnings is the deeper penetration of lab-grown diamonds (LGD), which accounted for 15% of fashion sales -- up double from a year ago. Further, they represent about 40% of bridal sales.

LGDs are a higher-margin business as they are cheaper to produce and more accessible and cheaper for consumers, yet jewelers can still sell them for a significant markup over low wholesale rates. Plus, LGDs allow retailers to better manage supply and inventory.

In the latest quarter, Signet grew its gross margin by 130 basis points to 37.3%.

Is it too late to buy Signet stock?

Signet's stock jump was fueled by strong earnings, but also the fact that the company raised its outlook for the fiscal year. In addition, Valentine's Day spending was projected to set a record, according to the National Retail Federation, with some $7 billion expected to be spent on jewelry.

Signet releases its fiscal fourth-quarter and year-end earnings on March 19, so investors will get an idea of how strong a quarter it really was. Signet will also provide an outlook for the coming fiscal year.

Analysts project about a 13% earnings increase next fiscal year, with revenue rising roughly 1% in the next fiscal year.

Overall, the jewelry industry is not slowing down, with sales projected to grow at a 4% to 5% annual rate through 2028, according to industry reports. That outpaces the growth rate for clothing sales and will be fueled by lab-grown diamonds, which are anticipated to grow at a 15% to 16% annual rate in that span.

So, the jewelry business looks like a good investment, and Signet is by far the leader here.

Even with its run-up, Signet stock still looks like it has room to run due to both growth expectations and its cheap valuation.

Signet is trading at just 9 times forward earnings, making it a great value based on future earnings growth projections. It might even be worth taking a look at the stock before earnings come out on March 19, as it is shaping up to be a strong quarter.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.