Williams Sonoma (NYSE:WSM) with it market capitalization of $7.31B is a multi-channel specialty retailer of products for the home. The Company is an e- commerce retailer with brands in home furnishings. It operates retail stores in the United States, Canada and Puerto Rico, and franchises its brands to a third party in a number of countries in the Middle East, including Bahrain, the Kingdom of Saudi Arabia, Kuwait and the United Arab Emirates.
Without much ado, Williams-Sonoma is one of the top players in the upscale retail sectors in the United States. Retail shoppers can be broadly classified into Survivalists and Selectionists. The survivalists are those who earn less than $50,000 a year and they are more likely to patronize convenience stores, retail stores and supermarkets. The Selectionists are those who earn more than $50,000 a year and they are likely to patronize specialty stores, even though discounts from these stores could offer more incentives to shop.
Why we are Looking at Williams Sonoma Today?
Williams-Sonoma has been crisscrossing my sight lately as the stock started uptrending into new highs in the last couple of weeks. For instance, the stock is trading above its 20, 50 and 200-day moving averages at a current trading range of $78.97 and $80.19. The stock has made 8 new highs and it is up 7.02% in the last one month. The best part is that an RSI of 62.22 suggests that we can expect the bullish action to continue.
Fundamentals In Support of Williams-Sonoma’s Bullish Thesis
Williams-Sonoma currently sports a P/E of 25.54, which shows that the stock is reasonably priced. It is expected that the company’s revenue will grow by 7.80% this year and by another 7.00% next year. It is also expected that Williams-Sonoma earnings will increase by 12.70% this year, 13.40% next year and an annual rate of a 13.90% increase is expected over the next 5 years.
In addition, analysts are optimistic about its prospects as 8 analysts consider the stock a “Strong Buy”, 5 analysts consider it a “Buy”, 16 analysts have a “Hold” recommendation on the stock and 1 analyst thinks the stock will “Underperform”.
The third reason I am optimistic about Williams Sonoma is the stock’s performance in the last one year as shown in the chart below. I have charted William Sonoma’s price performance against a core retail stock (Walmart).
Although, this is not exactly an apple-to-apple comparison, you will observe that Williams Sonoma has outperformed Walmart (a core retail stock) and the general market represented in the S&P 500. As shown in the chart, shares of Williams Sonoma have gained 49.06% in the last one year to outperform the 11.80% gain reported in the S&P 500 and the 17.56% gain reported by Walmart.
How to Trade WSM Options
I am optimistic about the prospects of Williams-Sonoma and I think you’ll do well to buy WSM call options. The evidence speaks for itself in that this is the stock to own for as long as the economy continues to improve and wealthy Americans continue to shop. I recommend buying WSM call options and the WSM May 2015 75.000 call (WSM150515C00075000) looks attractive at an asking price of $6.90
Nonetheless, you should consider setting a stop/limit order somewhere around $72 to account for a 10% pullback from its recent highs in the worst-case scenario. Hence, we will set top loss for the options contract at $6.21.
— Daily Option Alerts