Is Tiffany’s Stock A Buy After This Big Drop?

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With shares of Tiffany (NYSE:TIF) trading at around $59.76 is TIF an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Tiffany missed third quarter estimates with an EPS of $.49 vs. an expectation of $.63. Perhaps even more important is that Tiffany cut full-year estimates for the third time. Add the fact that inventories have climbed 11% and you have a scary situation. These factors are the reasons for the stock’s big drop. That drop is fully justifiable.

E = Debt to Equity Ratio is Low

Tiffany has a debt-to-equity ratio of 0.39, which is low. In regards to cash versus long-term debt, Tiffany has $367.44 million in cash and $784.41 million in debt. While they’re not on the plus side, these aren’t numbers to get too nervous about. For instance, Tiffany has $108 million in operating cash flow.

T = Technicals on the Stock Chart Are Poor

Tiffany has underperformed the S&P 500 recently.

Over the past month, Tiffany is down 4.43% while the S&P 500 is down .15%. Year-to-date, Tiffany is down 8.37% while the S&P 500 is up 14.43%. Over the past calendar year, Tiffany is down 9.27% while the S&P 500 is up 20.94%. When you look at three-year returns, Tiffany is up 46.29% while the S&P 500 is up 37.58%. Don’t get excited about the three-year return, though. The majority of this run took place when QE1 and QE2 had tremendous impacts on the market.

At $59.76, Tiffany is trading a few dollars lower than its 50-day SMA of $62.79. It’s trading less than one dollar lower than its 100-day SMA of $60.20. And it’s trading approximately two dollars lower than its 200-day SMA of $61.73.  

E = Earnings Are Not Steady  

Revenue growth and earnings have been solid on an annual basis.

2008

2009

2010

2011

2012

Revenue ($)in billions

2.93

2.85

2.71

3.09

3.64

Diluted EPS ($)

2.34

1.74

2.11

2.87

3.40

 

Quarterly revenue and earnings have been inconsistent.  

     7/2011      10/2011      1/2012      4/2012      7/2012
Revenue ($)in millions

873

822

1.18B

819

887

Diluted EPS ($)

.69

.70

1.38

.64

.72

 

T = Trends Do Not Support the Industry as Much as Earlier

Luxury spending has been strong in the United States over the past few years, which correlates to the meteoric rise in the stock market. Since the upper class has money to invest in the market, they enjoy the majority of the returns. This then allows them to spend money on luxury items.  While the overall market is currently holding its own, it’s in a trading range. The days of easy money have passed. While high-end items are still selling well at Tiffany, these sales will likely slow in the near future. Low-end sales have already dropped, which has hurt Tiffany significantly. Those sales aren’t likely to improve unless Tiffany becomes very creative very fast.   

Conclusion

Tiffany has seen extreme ups and downs over the past few years. This has actually been the case since 2000. Even without today’s miss, this makes Tiffany a risky play.

With an earnings miss, the cutting of full-year forecasts, a rise of 11% in inventory, Tiffany is not a stock you want to own right now. The Short % of the Float is also 8.50%, which shows there are many people who feel Tiffany is due for a fall.

Tiffany is a well-run company, and it’s a company that will be around for a long time. Unfortunately, it’s not a good stock to own at the moment. Based on all the factors listed above, Tiffany is a STAY AWAY in the near term.

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