Signet vs. Pandora: Which Jewelry Stock is a Better Buy?

Pandora A/S (PANDY) and Signet Jewelers Limited (SIG) are two prominent retailers in the jewelry market. Based in Denmark, PANDY designs, manufactures, and markets hand-finished and contemporary jewelry worldwide. The company provides silver and gold, artificial stones, gemstones, cultured pearls, diamonds, enamel, glass, leather, and textile products. It operates 2,690 concept stores, 4,402 other points of sale, and eSTOREs. On the other hand, Bermuda-based SIG engages in the retail sale of diamond jewelry, watches, and other products. As of January 30, 2021, it operated 2,833 jewelry stores and kiosks.

Although there was a decline in in-store sales during the pandemic, offering jewelry products through company-owned websites and other e-commerce platforms enabled the industry to witness good sales gradually. Despite high inflation and supply chain constraints affecting the production, the strong demand and rising consumer spending ahead of the holiday season surged the prices of precious metals, followed by jewelry lately. The global jewelry market is expected to grow at a 6.5% CAGR and reach $238.44 billion by 2026.

Jewelry stocks are known to have performed well during inflationary periods, as investors seek to invest in precious metals that act as a hedge against inflation and market fluctuations. So, both SIG and PANDY should benefit from these tailwinds in the coming months.

While PANDY gained 21.3% year-to-date, SIG has surged 226.8%. SIG is a clear winner with 45% gains versus PANDY’s negative returns in terms of their past six months’ performance. But which of these stocks is a better pick now? Let us find out.

Latest Developments

On May 4, 2021, PANDY launched its first lab-created diamond collection, Pandora Brilliance. Though identical to mined diamonds, lab-created diamonds are gaining traction among consumers these days. PANDY introduced the collection in the UK and plans to launch in other key markets worldwide in 2022.

On November 18, 2021, SIG acquired Diamonds Direct USA Inc. jewelry company for $490 million in cash. SIG expects this acquisition to accelerate its growth strategy, strategically expand its presence in the accessible luxury and bridal jewelry market, and drive modern consumer experience to its new and expanding customer base.

Recent Financial Results

PANDY’s revenues for the third quarter, ended September 30, 2021, increased 16.2% year-over-year to DKK4.73 billion ($718.01 million). The company’s gross profit came in at DKK3.57 billion ($542.30 million), up 12.8% from the prior-year period. Its operating profit came in at DKK957 million ($145.33 million), indicating a 104.9% rise from the year-ago period. PANDY’s net profit came in at DKK635 million ($96.43 million), indicating an 85.1% rise from the year-ago period. Its EPS increased 77.8% year-over-year to DKK6.40. As of September 30, 2021, the company had DKK824 million ($125.13 million) in cash.

For the fiscal third quarter ended October 30, 2021, SIG’s sales increased 18.3% year-over-year to $1.54 billion. The company’s non-GAAP gross profit came in at $575.60 million, representing a 31.9% rise from the prior-year period. Its non-GAAP operating income came in at $105.20 million, up 124.8% from the prior-year period. SIG’s net income came in at $83.90 million for the quarter, indicating a 9222.2% rise from the year-ago period. Its non-GAAP EPS increased 1200% to $1.43. The company had $1.52 billion in cash as of October 30, 2021.

Past and Expected Financial Performance

PANDY’s revenue and total assets have declined at CAGRs of 0.4% and 2.4%, respectively, over the past three years. Analysts expect PANDY’s revenue to grow 13.4% year-over-year in the current year and 7.5% next year.

In comparison, SIG’s revenue and total assets grew at CAGRs of 2.7% and 9.2%, respectively, over the past three years. The stock’s revenue is expected to increase 42.9% year-over-year in the current year and 3% next year.  

Valuation

In terms of forward EV/Sales, PANDY is currently trading at 3.85x, which is 442.3% higher than SIG’s 0.71x. In terms of trailing-12-month Price-to-Book, SIG’s 3.05x compares with PANDY’s 11.53x.

Profitability

SIG’s trailing-12-month revenue is almost 2.1 times PANDY’s. However, PANDY is more profitable, with a 76.5% gross profit margin versus SIG’s 38.9%.

Furthermore, PANDY’s ROE, ROA, and ROTC of 62.3%, 21.6%, and 31.5%, respectively, compare favorably with SIG’s 38%, 7.6%, and 12.7%.

POWR Ratings

Both SIG and PANDY have an overall B grade, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree. 

SIG has an A grade for Momentum, owing to its impressive price gains over the past year. SIG has delivered 226.8% price returns year-to-date. PANDY’s B grade for Momentum is in sync with its relatively lower price gains. PANDY surged 21.7% year-to-date.

SIG has a B grade for Value, which is in sync with its lower-than-industry valuation ratios. SIG has a forward EV/EBIT ratio of 6.48, 53% lower than the industry average of 13.81x. PANDY’s C grade for Value is consistent with its slightly higher valuation ratios. PANDY’s 15.52 forward Price/Book multiple is 12.4% higher than the industry average of 13.81.

Of the 63 stocks in the A-rated Fashion & Luxury industry, SIG is ranked #21. On the other hand, PANDY is ranked #16 of 72 stocks in the D-rated Consumer Goods industry.

Beyond what we have stated above, our POWR Ratings system has also rated SIG and PANDY for Growth, Stability, Sentiment, and Quality. Get all SIG ratings here. Also, click here to see the additional POWR Ratings for PANDY.

The Winner

Given the strong demand for jewelry ahead of the festive season and rising demand for metals and jewelry stocks to hedge inflationary pressures should enable both PANDY and SIG to grow substantially. However, relatively lower valuations make SIG a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry, and here for those in the Consumer Goods industry.

PANDY shares were trading at $32.72 per share on Friday afternoon, down $0.02 (-0.06%). Year-to-date, PANDY has gained 19.61%, versus a 26.99% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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