In This Article:
- By GF Value
The stock of Williams-Sonoma (NYSE:WSM, 30-year Financials) is believed to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $172.15 per share and the market cap of $13 billion, Williams-Sonoma stock is estimated to be significantly overvalued. GF Value for Williams-Sonoma is shown in the chart below.
Because Williams-Sonoma is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 11.8% over the past five years.
Link: These companies may deliever higher future returns at reduced risk.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Williams-Sonoma has a cash-to-debt ratio of 0.78, which ranks in the middle range of the companies in the industry of Retail - Cyclical. Based on this, GuruFocus ranks Williams-Sonoma's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Williams-Sonoma over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Williams-Sonoma has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $6.8 billion and earnings of $8.61 a share. Its operating margin is 13.43%, which ranks better than 88% of the companies in the industry of Retail - Cyclical. Overall, the profitability of Williams-Sonoma is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Williams-Sonoma over the past years: