Tiffany & Co. Is Overvalued; Low Returns Should Be Expected


.Tiffany & Co. (TIF) is currently trading at rich valuations of 24.1 times price to this year’s forecast earnings and 21.9 times price to next year’s forecast earnings. High growth companies deserve higher valuations; however, Tiffany does not belong to this category despite the recent improvements in sales. Higher sales are driven mainly by store openings but same-store sales are continuing to weaken. The weakening same-store sales are the result of a footfall decline in brick and mortar stores and so the company is exposed to the same risk as other retailers operating physical stores. Signet Jewelers (NYSE:SIG) is the closest publicly traded peer to Tiffany, however, this company trades at a multiple of 9.1 times this year's forecast earnings. Carter's (NYSE:CRI) is another company even though it sells children's clothing rather than luxury goods. However, the company trades at 16.2 times this year’s earnings and 14.7 times next year’s earnings and is expected to deliver much higher sales and EPS growth. And so, sales growth, profitability, and balance sheet differences do not explain such a valuation discrepancy, therefore I would not expect a significant price appreciation of Tiffany from current levels.


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