Remote Work Spurred This Retailer's Stock to New Highs

Wednesday: The Independent Investor FROM THE DESK OF MILES EVERSON: One of the things we do at MBO Partners is we keep an eye on the latest trends about the independent workforce and the At-Home Revolution, which was even more accelerated by the COVID-19 pandemic. And based on our latest State of Independence in America study, the independent workforce is expected to grow and the work from home setup is here to stay. Do you know that the At-Home Revolution is providing some benefits and advantages in some companies’ stocks? One of these companies is what we’ll talk about today. Keep reading and gain independent investor insights by analyzing our investment topic below. CEO, MBO Partners Chairman of the Advisory Board, The I Institute

Remote Work Spurred This Retailer's Stock to New Highs A New York Times Wirecutter blog post on "How to Move Your Home Office Outside" points out that as more and more people have adapted to working from home over the past year and a half, many have begun to think about new places around the home to work. For many, as the fair fall weather still allows it, this has meant going outside. The reasoning is that a change in scenery can keep the mind fresh and boost productivity, contributing to a healthier work environment. But as the Wirecutter post mentions, it's not always as easy as it seems to push the office outdoors. Workers need to consider whether their Wi-Fi coverage will be sufficient – if they can find a spot without glare – and whether they have a comfortable place to sit that can foster productivity... All of this means shopping for new outdoor furniture... For the many people who've embraced the idea of enjoying the outdoors during work hours, investing in new outdoor furniture has been a must… if they can find any without a long wait time for delivery. The disruptions facing the industry are common across the market. Surging demand means home furnishing retailers like Williams-Sonoma (WSM) have been riding this tailwind over the past year and a half. The company owns several retail brands, including Pottery Barn, West Elm, and Rejuvenation. Considering how folks are still moving or renovating through the At-Home Revolution, they continue to buy furniture for their homes. This means strong demand is unlikely to abate any time soon. Williams-Sonoma's Uniform return on assets ("ROA") spiked to 16% in 2021 and is forecast to remain above historical averages over the next two years as the new orders keep rolling in. Is Williams-Sonoma a good stock to buy? A spike in earnings alone isn't enough reason to rush out and buy the stock. What matters is what the market is pricing the company to do in the future. If it is already pricing in the strong furniture demand tailwinds, buying the stock at current prices is akin to putting your money into something with little if any upside. Fortunately, by utilizing the Embedded Expectations Analysis framework, we can get a good sense of exactly what the market is anticipating for Williams-Sonoma over the next few years. Stock valuations are typically determined using a discounted cash flow ("DCF") model, which makes assumptions about the future and produces the "intrinsic value" of the stock. In the chart below, the dark blue bars represent William-Sonoma's historical corporate performance levels in terms of return on assets ("ROA"). The light blue bars are Wall Street analysts' expectations for the next two years. Finally, the white bars are the market's expectations for how the company's ROA will shift over the next five years. The analysis highlights that the market isn't expecting ROA to stay this high forever, pricing in returns to fade to an average of 12% over the next five years. However, at these levels, the market is still pricing ROA to remain above 11%, suggesting the boost from the pandemic will last indefinitely. Whether or not the demand for home furniture and related accessories continues to surge, it may be hard to justify buying Williams-Sonoma at these levels. Without the help of the Embedded Expectations Analysis, you would have no context to see whether Williams-Sonoma is a screaming buy... Thanks to this framework, you can find the best stock picks and understand whether the names are old news or overlooked. Hope you’ve found this week’s insights interesting and helpful. Follow us on LinkedIn. Stay tuned for next Wednesday’s The Independent Investor! #FREECON is an online convention that we at MBO Partners host to help freelancers and aspiring business professionals maximize work opportunities and create more acceptance for the freelancing model. Learn more about why you should be extra careful in considering balanced funds on next week’s The Independent Investor!