Is Tiffany a Dangerous Investment Here?

With shares of Tiffany & Co. (NYSE:TIF) trading at around $77.91, is TIF an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Tiffany recently hiked its dividend by 6 percent. This is often a sign that a company is confident in its future prospects, which thereby leads to increased investor confidence. For Tiffany, this makes 12 dividend increases in 11 years, and the stock now yields 1.60 percent.

Tiffany has been a strong brand for many years. The following video is an example:

The Tiffany brand is strong, but there is a dilemma on the horizon. With middle-income consumers slowing their Tiffany shopping, the company needs to lower some prices to get those consumers back into the store. This has the potential to tarnish the brand. Then again, revenue and earnings growth have been slowing, and something needs to be done.

This situation could become even more challenging if the stock market and/or real estate market suffer steep corrections. If this takes place, then high-income consumers are likely to decrease spending.

Tiffany, like almost every retailer, is trying to build an online presence. According to Alexa.com, Tiffany.com is currently ranked 12,146 globally and 3,135 in the United States. These numbers are poor for a retailer of this size. Over the past three months, pageviews-per-user has declined 9.5 percent, time-on-site has declined 9 percent, and the bounce rate (only one page per view) has increased 14 percent. These numbers aren’t inspiring.

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Below is a chart comparing fundamentals for Tiffany, Coach (NYSE:COH), and Michael Kors Holdings Limited (NYSE:KORS).

TIF COH KORS
Trailing P/E 23.97 16.09 35.51
Forward P/E 19.67 14.45 24.83
Profit Margin 10.97% 21.26% 17.31%
ROE 16.78% 50.90% 52.35%
Operating Cash Flow 328.29M 1.32B 247.11M
Dividend Yield 1.60% 2.00% N/A
Short Position 7.30% 6.20% 2.70%

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

T = Technicals Are Strong

Tiffany has been a strong performer over the past three years.

1 Month Year-To-Date 1 Year 3 Year
TIF 11.13% 36.50% 31.20% 89.98%
COH 16.27% 7.89% -7.75% 60.88%
KORS 14.13% 18.71% 61.33% -0.05%

At $77.91, Tiffany is trading well above its averages.

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50-Day SMA 73.18
200-Day SMA 65.76

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Tiffany is close to the industry average of 0.20.

Debt-To-Equity Cash Long-Term Debt
TIF 0.37 506.20M 959.27M
COH 0.01 928.49M 22.61M
KORS 0.00 405.78M 0.00

E = Earnings Have Been Steady

Earnings had been improving on an annual basis, but there was a setback in 2012. Revenue has improved for three consecutive years, but the rate of growth has slowed.

Fiscal Year 2009 2010 2011 2012 2013
Revenue ($) in millions 2,860 2,710 3,085 3,643 3,794
Diluted EPS ($) 1.74 2.11 2.87 3.40 3.25

When we look at the last quarter on a year-over-year basis, we see a substantial increase in revenue and earnings. This is also the case on a sequential basis, but it would be difficult for this to continue.

Quarter Apr. 30, 2012 Jul. 31, 2012 Oct. 31, 2012 Jan. 31, 2013
Revenue ($) in millions 819.17 886.57 852.74 1,235.77
Diluted EPS ($) 0.64 0.72 0.49 1.40

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry             

High-end retailers have been performing well as of late, but revenues are becoming a concern. In regards to the global economy, commodities have been slowing, which is often an early sign of slowing demand.

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Conclusion

Tiffany has brand recognition, geographic diversification, solid margins, and high sales per square foot. On the other hand, the stock lacks resiliency in weak market environments. The stock is currently trading at 24 times earnings, whereas the industry is trading at 10 times earnings. Furthermore, there is a 7.30 percent short position on the stock, which indicates that there are many people betting against Tiffany.

Due to the stock’s upward momentum, there is more upside potential. However, downside risks outweigh potential rewards over the next year. Therefore, Tiffany is a WAIT AND SEE.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions.

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