With the US economy remaining stubbornly robust, it is likely that we will see continued progress in consumer discretionary spending -- such as jewelry.

Signet Jewelers (SIG Quick QuoteSIG - Free Report)  should enjoy a boost to sales thanks to this favorable development.

Headquartered in Akron, Ohio, Signet Jewelers is the world's largest diamond jewelry retailer, operating prominent brands such as Kay Jewelers, Zales, Jared, and H. Samuel. With 2,700 stores across the U.S., Canada, UK, and Ireland, Signet combines extensive brick-and-mortar presence with a strong e-commerce platform. The company specializes in diamond engagement rings and fine jewelry, catering to various customer segments.

Signet Jewelers stock has struggled over the last decade, sitting essentially flat over that period. However, recent bullish catalysts lead me to believe there are considerable near-term tailwinds that may drive the stock higher.

Although at its most recent quarterly earnings meeting Signet Jewelers showed a -6% fall in sales, management also highlighted growing margins (160bps), $600 million in free cash flow, a 30% increase in share buybacks, and an increase in the dividend payment.

The company also enjoys a robust balance sheet, with a large cash position and zero long-term debt.

Additionally, Signet Jewelers just jumped onto the Zacks Rank, reflecting upward trending earnings revisions, and has formed a convincing technical chart pattern, which indicates a bull run may be coming.

All these factors together make Signet Jewelers stock a worthwhile consideration for any investor.

Signet Jewelers Earnings Estimates on the Rise

Analysts have taken a liking to the stock, boosting earnings estimates nicely. Excluding the current quarter’s earnings estimates, all future timeframes have seen hefty increases.

FY24 earnings estimates have risen by 10% and FY25 by a whopping 17.2%, giving SIG a Zacks Rank #1 (Strong Buy) rating.

Signet also sits in an industry near the top of the Zacks Industry Rank. As of today, the Retail-Jewelry industry is in the top 13% (33 out of 248) of all industries, indicating near-term bullish expectations.

Image Source: Zacks Investment Research

Technical Setup

The price action on SIG stock is what really caught my attention. Below we have a weekly candlestick chart showing a prototypical cup and handle pattern.

If the price can trade above the $103 level, it would signal a technical breakout. If the pattern is completed, I think the stock could quickly trade towards $120, and after that, target its all-time high of $127.

However, it is worth noting that if Signet Jewelers stock loses the $95 level of support, the pattern is nullified, and tactical traders may want to wait for another trading opportunity.

Image Source: TradingView

Signet Jewelers Valuation

Signet Jewelers is trading at a one year forward earnings multiple of 9.3x, which is well below the market average and just below its 10-year median of 9.6x.

This is a fairly reasonable valuation but reflects minimal growth estimates. Current year sales are expected to fall -4.3%, while next year should pick up a bit to +2.8%. These are low expectations, so if SIG can surprise to the upside it should allow for some multiple expansion and send the stock higher.

Image Source: Zacks Investment Research

Bottom Line

As of today, Signet Jewelers is a stock that has very little downside risk, with potential for some near-term price appreciation. The business is sturdy, but growth expectations are low. However, with the strong economy, SIG’s burgeoning e-commerce segment, and the top Zacks Rank, I think we could see some upside surprises from the jewelry retailer.

Based on this setup, I think Signet Jewelers is a worthy investment to consider.