Free Trial

Williams-Sonoma Surged 20% and Could Double in Price

Williams Sonoma stock price

Key Points

  • Williams-Sonoma had a solid quarter highlighted by full-price selling and wide margins. 
  • Cash flow is robust and allows for balance sheet improvement and an increase in capital returns. 
  • The stock is up and may move significantly higher if it can cross a critical threshold. 
  • 5 stocks we like better than Williams-Sonoma

Williams-Sonoma’s NYSE: WSM stock surge is due to its persistent outperformance and quality business. The company contracted in 2023 along with the housing market, but cash flow remained solid, driving substantial capital returns for investors. The Q4 results continue the trend and point to a pivot this year. That will be a pivot back to growth accompanied by solid margins and sustained capital returns. 

Among the drivers for the share price is the valuation. The stock is arguably a highly-valued issued trading at 19X earnings, but that perspective is based on the brick-and-mortar business. Lifestyle retailers are struggling in 2023 with consumers shifting to dailies, consumables, and off-price retailers like The TJX Companies NYSE: TJX, as seen in their share prices. And it’s not like lifestyle stores trade at high valuations. Haverty’s NYSE: HVT trades at 16X earnings, aligning with Williams-Sonoma’s pre-release valuation, while Ethan Allen Interiors NYSE: ETD trades closer to 12X

Looking at the company from the eCommerce perspective, it is undervalued. eCommerce category leaders such as Arhaus NASDAQ: ARHS, RH NYSE: RH, and Wayfair NYSE: W trade at much higher valuations. Besides WSM, Arhaus is the cheapest of the group; it trades for 24X earnings, while RH trades at 36X and Wayfair at 60X. From this perspective, the stock could gain another 25% to 200% on price-multiple expansion. eCommerce accounts for roughly 65% of the business, so it makes sense to value it like one. 

Is Williams-Sonoma a Best in Breed? The Results Say Yes

Williams-Sonoma’s results, guidance, balance sheet, and capital returns prove it is a best-in-breed quality stock for investors. The company’s revenue fell 6.9% compared to last year but exceeded expectations and is up 29% compared to the pre-COVID quarter. Comps are down 6.8% across the network, with the most weakness in West Elm. West Elm contracted by 15%, Pottery Barn fell 9.6%, and Pottery Barn Kids 2.5%. The core Williams-Sonoma brand grew by 1.6%. 

Margin news is the most impressive aspect of the report. The company reported a solid 20.1% operating margin, well above its long-term target. This represents Williams-Sonoma’s brand strength and market, which is more affluent and discerning, allowing for full-price selling. The takeaway is that earnings outpaced the consensus by a wide margin, and the outlook for next year is good. 

The company guided for flat revenue +/- 3%, including an extra 53rd week, and for margins to remain strong. Margin is expected to contract over the year but remains within the long-term target of mid-to-high teens. Analysts expected revenue to fall more than 1% at the consensus. 

Did Williams-Sonoma Increase its Capital Return? Substantially

Another catalyst from the report is an increase in capital returns. The company increased the dividend by 25% and raised the repurchase authorization by $1 billion. $1 billion in stock repurchases is worth 6.5% in market cap with shares at the new high: the new dividend yield is just over 1.5% and sustainable. The payout ratio is still below 30%, and the balance sheet has no red flags

Cash flow allowed for a significant improvement in the balance sheet, and robust cash flow is expected again this year. Balance sheet and cash flow highlights include $1.7 billion in cash flow, a 3X build in cash, and a 5% increase in equity. 

Do Analysts Think Williams-Sonoma is Overvalued? 

Analysts' sentiment may cap gains in Williams-Sonoma because the market has outrun the estimates. The stock surge has this market trading above the analysts' highest target, and they are not gushing over the news. The first revision on Marketbeat’s radar is a reiterated Outperform from Telsey Advisory Group with a price target of $265, $20 below current action, and the consensus is $80 lower than that. The bottom line is that Williams-Sonoma's stock price may not sustain the new highs without upward revisions. 

Technically speaking, the market is at a critical resistance target projected when it broke to new highs this year. That point is near $290; a move above it would open the door to another $90 upside. 

Willams Sonoma stop chart

Should you invest $1,000 in Williams-Sonoma right now?

Before you consider Williams-Sonoma, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Williams-Sonoma wasn't on the list.

While Williams-Sonoma currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

10 Best Cheap Stocks to Buy Now Cover

MarketBeat just released its list of 10 cheap stocks that have been overlooked by the market and may be seriously undervalued. Click the link below to see which companies made the list.

Get This Free Report
Thomas Hughes
About The Author

Thomas Hughes

Contributing Author

Technical and Fundamental Analysis

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
TJX Companies (TJX)
4.315 of 5 stars
$108.50+0.2%1.38%26.92Moderate Buy$110.37
Wayfair (W)
4.123 of 5 stars
$52.62-3.6%N/A-9.82Moderate Buy$77.83
Arhaus (ARHS)
2.4685 of 5 stars
$18.20-3.7%N/A23.95Moderate Buy$16.56
4.8066 of 5 stars
Haverty Furniture Companies (HVT)
4.3374 of 5 stars
Ethan Allen Interiors (ETD)
3.4486 of 5 stars
$27.44-0.9%5.69%9.98Moderate Buy$35.00
Williams-Sonoma (WSM)
4.1943 of 5 stars
Compare These Stocks  Add These Stocks to My Watchlist 

Featured Articles and Offers

Recent Videos

Will FOMC Push Stocks Higher? Here’s What to Expect
Unlock Growth: Understanding Dividend Yield
Palantir Stock Excluded from S&P 500: Still a Buy?

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines