With EPS Growth And More, Williams-Sonoma (NYSE:WSM) Is Interesting

By
Simply Wall St
Published
June 22, 2021
NYSE:WSM
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

So if you're like me, you might be more interested in profitable, growing companies, like Williams-Sonoma (NYSE:WSM). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

See our latest analysis for Williams-Sonoma

How Quickly Is Williams-Sonoma Increasing Earnings Per Share?

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Who among us would not applaud Williams-Sonoma's stratospheric annual EPS growth of 54%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that Williams-Sonoma is growing revenues, and EBIT margins improved by 7.8 percentage points to 16%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
NYSE:WSM Earnings and Revenue History June 23rd 2021

Fortunately, we've got access to analyst forecasts of Williams-Sonoma's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Williams-Sonoma Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$12b company like Williams-Sonoma. But we do take comfort from the fact that they are investors in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$145m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

Is Williams-Sonoma Worth Keeping An Eye On?

Williams-Sonoma's earnings per share have taken off like a rocket aimed right at the moon. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering Williams-Sonoma for a spot on your watchlist. We don't want to rain on the parade too much, but we did also find 1 warning sign for Williams-Sonoma that you need to be mindful of.

Although Williams-Sonoma certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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