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Stock Strategist

Signet Makes Progress

We think the shares are undervalued as the market focuses on the short term.

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As the largest seller of affordable diamond, gold, and silver jewelry in the United States, and with significant operations in Canada and the United Kingdom,  Signet Jewelers (SIG) is steadily consolidating what has traditionally been a fragmented retail segment. Signet operates a number of jewelry brands, including Jared, Kay, and Zales, which it segments by customer buying occasion, attitude, and in-store experience.

By using its solid balance sheet and financial clout, Signet is able to offer customers of the Sterling division (principally Kay and Jared) the ability to purchase higher-ticket items--typically bridal and engagement jewelry--on credit for which it services the receivables. Because many independent jewelry stores cannot offer credit, this gives Signet a competitive advantage. The firm also buys many of its goods directly from international vendors at a price advantage compared with independent stores, which are still a large majority of the $75 billion U.S. retail jewelry industry. In diamonds and finished jewelry, Signet has buying power compared with many smaller vendors.

Paul Swinand does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.