Williams-Sonoma stock: is this future dividend aristocrat a buy?

Williams-Sonoma (NYSE: WSM) stock price continued its uptrend this week and reached its all-time high of $350. It has been one of the best-performing retail stocks as it jumped by over 390% in the past decade and by over 500% in the past five years. This growth has helped its market cap soar to over $20 billion.

Strong growth helped by digital sales

Williams-Sonoma is one of the most visionary companies in the retail sector. It was one of the first firms to leverage the Internet as a way of boosting its sales. As a result, while WSM is a retailer, it generates most of its sales in the internet.

The company also owns brands that serve customers across demographics. Pottery Barn Kids and Teen focuses on young people while West Elm and Williams-Sonoma targets people in different wealth levels.

WSM continued its growth this year. Its total revenues jumped to $1.6 billion while its net earnings jumped to $265 million. In a statement, Laura Alber, the CEO said:

“We are pleased to deliver strong results in the first quarter of 2024, driven by an improving top-line trend and continued strength in our profitability. We remain committed to executing on our three key priorities in 2024 – returning to growth, elevating our world-class customer service, and driving margin.”

There are several reasons why Williams-Sonoma stock has more upside going forward. First, the company has more room to supercharge growth, especially when interest rates and inflation start coming down.

Second, the stock is relatively undervalued compared to the broader market. It has a forward PE ratio of 19, which is lower than the S&P 500 index’s multiple of 21. This valuation difference is likely because WSM’s forward growth rate is minus 2.8% while analysts expect that the S&P 500 growth rate is about 3%.

Third, the company is a future dividend aristocrat. It has boosted its dividends for 17 straight years while its five-year growth rate stood at 16.6%. Most notably, it has a healthy payout ratio of 24.23%, meaning that it has a room to boost its payouts because it has no debt.

Williams-Somoma stock price forecast

WSM chart by TradingView

The daily chart shows that the WSM share price has been in a strong bull run in the past few years. It recently crossed the important resistance point at $319.18, its highest swing in April this year. By moving above that level, it invalidated the double-top pattern that has been forming.

Williams-Sonoma shares have remained above the 50-day and 100-day Exponential Moving Averages (EMA). The Relative Strength Index (RSI) has remained slightly below the overbought level.

Therefore, the outlook for the stock is bullish, with the next target being at $400. This forecast is in line with my last Williams-Sonoma stock forecast.