Summary
- Tiffany & Co. has not participated in a stock market rally that has seen the S&P 500 reach new highs.
- The company is taking a hit from the US-China tariffs and the slowdown in spending from foreign tourists in key markets.
- The stock is now trading at the same levels as in early 2015. Despite this, earnings have grown since then, meaning that the valuation is much more appealing today.
Despite the S&P 500 cracking 3,000 for the first time ever, premium retailer Tiffany & Co. (TIF) has refrained from participating in the recent successes of the stock market. While still a ways from its 52-week low of $73 per share, the stock's current price of $93 leaves it in middling territory. We are reiterating previous interest in Tiffany & Co. due to what the stock can offer investors in the long term. The company faces some potential headwinds in the form of outside factors that could push shares lower, but long-term investors still stand to benefit from the current valuation offering. We will review both sides of the coin further below.
Perhaps the recent stagnation of Tiffany & Co. partially stems from its strong run last summer when shares soared to as high as $141 per share. At that point in time, the stock was priced at almost 30X 2018 earnings per share of $4.75.
Source: YCharts
Now that the stock has cooled, it is more reasonably priced at just 18.55X approximate analyst estimates for the 2019 fiscal year (earnings estimated at approximately $5 per share). This is a notable discount of 17% to the stock's 10-year median PE ratio of 22.23X.
So what has caused the market to cool on Tiffany & Co.? First, there is a dark cloud hanging over the US and Chinese relations in the form of an ongoing trade war/dispute. The two sides recently started talks again, but each side appears to remain dug into positions of stubbornness.
Furthermore, Tiffany's two largest markets are the Americas and the Asia-Pacific region (which China represents a large share of). Some quick and easy math will point to the fact that a recessionary event impacting these two markets would be very detrimental to Tiffany & Co.
