Signet Jewelers Stock No Diamond In The Rough At 52-Week Lows, New Short Report Says 'Business To Suffer Significantly'

Diamond jewelry retailer Signet Jewelers SIG is the subject of a new short report that comes as shares trade near 52-week lows after the company lowered fourth-quarter guidance.

Here's why The Bear Cave predicts more trouble ahead.

Signet's Increased Competition: The latest Bear Cave short report targets the diamond jewelry company on the thesis that lab grown diamonds will continue to cut into Signet's market share.

"The Bear Cave believes today's youth and future generations will shift towards lab-grown diamond engagement rings and mined diamonds will be a vestige of the past," the report said.

Benzinga contacted Signet for comment on the report.

Signet operates the Zales, Kay and Jared brands predominantly in malls with a key demographic being low-to-middle-income engagement ring shoppers, the report adds.

"The Bear Cave further believes the trend of lab-grown diamonds is accelerating quickly, will cause a strong devaluation in both mined and lab-grown diamond prices, and will cause Signet's business to suffer significantly."

A lower price point and ethics concerns over how diamonds are mined could result in the wave of young engagement ring buyers shifting to lab-grown diamonds, the report said.

The Bear Cave cites a rise of posts on social media talking about lab-grown diamonds and their positives as being a potential negative for Signet's future. The report highlights one user's post around the argument for buying an engagement ring that looks better at one-tenth the price and saving thousands of dollars that can be used to spend on a honeymoon or wedding.

Read Also: Short Sellers Are Back – Flurry Of Big Calls From Muddy Waters, Citron And Others Raises Questions: Why Now?

What's Next: The growth of lab-grown diamonds could threaten Signet's business model and send prices for diamonds even lower, the report said.

Signet has around $2 billion in inventory on its balance sheet, according to the report. This figure could decline over time and hurt the overall value of the company.

The rise of lab-grown diamonds could result in less frequent purchases of Signet’s extended service agreements, The Bear Cave said.

Service agreements drive high-margin revenue for Signet and are frequently priced as a percentage of the cost of an engagement ring, the short report said, and will decline with the price of engagement rings.

Signet recently lowered its fourth-quarter revenue guidance from a range of $2.38 billion to $2.46 billion to a new range of $2.32 billion to $2.335 billion. Shares fell in December after the company reported third-quarter revenue and earnings per share that missed analyst estimates.

SIG Price Action: Signet stock is down 2.19% to $57.63 on Thursday versus a 52-week trading range of $54.44 to $112.06. Signet stock is down 21% over the last five days and down 31% over the last month.

Read Next:

• Musk, Ramaswamy Should Target TransDigm In Budget Cuts, Short Report Says: ‘Target #1’ For D.O.G.E.

Photo via Shutterstock.