TRADE INSTRUCTIONS
Date: November 22, 2017
Name: Signet Jewelers Ltd.
Symbol: SIG (NYSE)
Type: Open
Limit: Buy below $54

TRADE TARGETS
Holding Period: 3 months
Target Return: 9.3%
Annualized Return: 37.2.6%
Target Price: $59
Stop Loss Level: $48

COMPANY DESCRIPTION
Signet Jewelers Limited is a retailer of diamond jewelry. The Company’s segments include the Sterling Jewelers division; the Zale division, which consists of the Zale Jewelry and Piercing Pagoda segments; the UK Jewelry division, and Other (the Other segment includes the operations of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones). Link to company website.

TRADE RATIONALE       
It isn’t often that our Rapid Profits Matrix assigns a near-perfect score to a stock for both its value and growth metrics, but that’s what happened when shares of Signet tanked after reducing guidance for the fourth quarter at the start of this week. After closing at $75.84 on Monday, SIG traded as low as $52.50 on Tuesday before stabilizing around $53 today.

From a value perspective, SIG is now priced at slightly more than 7 times reduced forward earnings, and only 0.5 times sales. As for growth, its yield-adjusted PEG ratio of 0.5 suggests it is oversold despite its reduced profit outlook.

Of course, it doesn’t take much to send a retail stock reeling these days, but a drop of that magnitude is extreme. Even still, with so little momentum behind retail stocks it will take more than a reversion to the mean to get SIG moving back up the charts.

I think that could be better than expected “Black Friday” sales for retailers reported next week. Given the very low expectation set by virtually every retailer that gave forward guidance for holiday sales, anything better than a washout should push the entire retail sector higher over the next month.

If I’m wrong about that, I still don’t see much more downside risk left in the stock. But it may take confirmation of decent Christmas sales to push it back above $60, which is why I am putting a three-month target hold on this position.

NOTE: This stock is optionable.