Stock Market

In a year where many retail investors turned to meme stocks and SPACs, specialty home goods retailer Williams-Sonoma (NYSE:WSM) has avoided the risk and irrational valuations seen elsewhere in the market. And WSM stock has performed extremely well in 2021.

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Shares are up 74.13% in 2021 as of the close on Sept. 30, 2021, with a stock price of $177.33. Recently, it was trading around $171 per share.

WSM is a stock that fits perfectly in my ideal stock description.

In a few words, my ideal stock would be a company whose shares would have an attractive valuation, very strong fundamentals, with reasonable and sustainable growth. A dividend would be a bonus – more than welcome.

While many investors are afraid that the WSM stock price may have entered into overvalued territory, I strongly believe that shares are still attractive and could continue to deliver stellar performance.

WSM Stock News

Williams-Sonoma has a forward dividend and yield of $2.84 and 1.48% respectively. This is a company that has posted consistent dividend growth for the past 10 years. According to Morningstar, the WSM stock dividend increased each year, ranging from 73 cents per share in 2012 to $2.02 in 2021.

This makes the stock suitable for dividend-growth investors. When a company such as Williams-Sonoma shows such a dividend policy, investors rely on it for reliable income. But there was more good news about the dividend investors in August: “Williams-Sonoma, Inc. announces a 20% quarterly dividend increase and a new $1.25 billion stock repurchase authorization.

Laura Alber, president, and CEO of the company, said the moves “reflect the strength of our business and financial position and our commitment to maximizing returns for our shareholders.”

When you get a substantial dividend increase and at the same, a share buyback program, investors are rewarded but also know that the management signals the stock may be undervalued too.

The culture that the management of Williams-Sonoma has for its shareholders is remarkable. The management is performing very well to maximize shareholders’ value. This should be the case for all public companies, except most of them ignore this rule.

Consecutive Quarters of Very Strong Results

Williams Sonoma has a strong Q1 2021 earnings report with “Q1 comparable brand revenue growth accelerates to 40.4%” and raising the full-year 2021 outlook. A company shows confidence in its business prospects when it raises the outlook for the full year.

And this confidence paid off as Williams-Sonoma announced record Q2 2021 results.

The main highlights were:

  • Q2 revenues grew 30.7% with comparable brand revenue growth of 29.8%
  • GAAP operating margin of 16.6% in Q2
  • Q2 GAAP diluted EPS of $3.21; Q2 non-GAAP diluted EPS of $3.24, increasing 80%

A series of very strong earnings results is a key catalyst that supports the stock and could continue its momentum in 2021, although with a beta of 1.66, the stock is volatile.

A Strong Balance Sheet reports that WSM stock has a three-year annualized dividend growth of 27.92%, a 10-year annualized dividend growth of 258.18%, plus 15 years of consecutive dividend growth. These numbers are excellent.

On top of that, the payout ratio of 28.9% for 2021 is not excessive, is sustainable and it the margin to increase. This is thanks to strong EPS and free cash flow growth.

Williams Sonoma has a strong balance sheet. The Q2 2021 earnings report showed it eliminated short-term debt and long-term debt compared to debt that the company had on its balance sheet in January. Net margin, ROE (return on equity) and ROA (return on assets) for the fiscal year 2021 are all on the top of their range for the past five years.

The free cash flow trend is also strong, with positive and increasing figures for the past three years. MarketWatch says WSM’s free cash flow was $395.88 million in 2019, $647.28 million in 2020 and $1.33 billion this year.

Zacks estimates a three to five year EPS growth of 8.46%. This is very attractive. On a relative basis, data from CSI Market shows that WSM stock has a PE Ratio (Q2 TTM) of 13.33. This compares favorable to the PE ratio of 15.44 for the furniture and fixtures industry. The consumer discretionary sector’s is 44.78.

WSM Stock Bottom Line

Williams-Sonoma has a solid dividend policy, very strong fundamentals, attractive valuation, and expected sustainable growth in terms of EPS. I am very optimistic about its future financial and stock market performance.

On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn