Sarah Travers
In the ever-evolving world of stock investing, one of the key questions that often perplexes investors is the role of valuation in their decision-making process. Is a high valuation a red flag, or can it be justified by other factors? We’re here to break down this dilemma into three distinct categories: high valuations, moderate valuations, and hidden gems – the bargains. Today, we spotlight two undervalued stocks that have caught the attention of long-term investors with $500 to invest.
Williams-Sonoma – Premium Housewares, Budget Valuation
Williams-Sonoma, known for its upscale housewares and furniture, has been facing headwinds in recent times due to a sluggish housing market and financial pressure on its customers. However, it’s not all doom and gloom. In the fiscal 2023 third quarter, the company saw its comparable brand revenue decline by 14.6% year over year. Despite this, it remained profitable, with a gross margin increase of 2.9 percentage points to 44.4%.
Furthermore, Williams-Sonoma has a strong e-commerce presence, with a whopping 66% of its sales coming from this underpenetrated market. This suggests room for organic growth as more customers embrace online shopping for home goods. The company is also expanding into new regions and business-to-business initiatives, which could fuel future growth. With a dividend yield of 1.7% and a price-to-earnings ratio of 14, Williams-Sonoma presents itself as a value stock that’s worth adding to your investment portfolio.
Skechers – Affordable Activewear and Footwear, Undervalued Gem
Skechers, on the other hand, has carved out a niche in the activewear and footwear market as a budget-friendly alternative to premium brands like Nike. Despite the challenging economic environment marked by inflation, Skechers has managed to thrive. In the third quarter, its sales surged by 7.8% year over year, surpassing even industry giants like Nike in comparable periods.
A significant contributor to its success is the company’s emphasis on direct-to-consumer sales, which grew by an impressive 23%. This not only fosters customer loyalty but also enhances profitability. Skechers witnessed a substantial improvement in its gross margin, jumping from 47.1% to 52.9%, while operating margin expanded from 6.9% to 10.5%. This growth translated into a remarkable 69% year-over-year increase in earnings per share (EPS).
Although Skechers doesn’t pay dividends, it has an active share-buyback program, having repurchased $100 million worth of its stock in the past year. Trading at a price-to-earnings ratio of 18, Skechers has consistently outperformed the market in recent years, making it a compelling investment option.
Investing in Undervalued Stocks
Investing in undervalued stocks can be a wise strategy for long-term investors seeking opportunities in a market filled with high valuations. Williams-Sonoma and Skechers represent two such opportunities. While both companies face short-term challenges, they boast solid fundamentals and growth prospects that make them attractive choices for investors with a discerning eye for value.
As the stock market continues its twists and turns, finding undervalued gems like Williams-Sonoma and Skechers can offer a path to long-term investment success. These companies not only present attractive valuations but also exhibit the potential for growth in the years to come. So, if you have $500 to invest in the new year, consider these undervalued stocks as promising additions to your investment portfolio.
