Signet Jewelers shares fell by -9.2% during the day's morning session, and are now trading at a price of $63.14. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Signet Jewelers Limited operates as a diamond jewelry retailer. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.33 and an average price to book (P/B) ratio of 3.12. In contrast, Signet Jewelers has a trailing 12 month P/E ratio of 9.5 and a P/B ratio of 1.8.
P/B ratios are calculated by dividing the company's market value by its equity's book value. Equity refers to all of the company's assets minus its liabilities. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.
When we divideSignet Jewelers's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.87, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
