Is Williams Sonoma (WSM) Still Attractive After Its Strong Multi Year Share Price Run

• If you are wondering whether Williams-Sonoma is still good value after its strong run in recent years, you are not alone. This article will focus squarely on what the current price might mean for potential investors.
• The stock last closed at US$206.79, with a return of 10.1% year to date and a 1.4% return over the past year, while the 3 year and 5 year returns sit at 230.0% and 256.7% respectively, despite small pullbacks of 2.7% over the last week and 0.6% over the last month.
• Recent coverage around Williams-Sonoma has centered on its position as an established home furnishings retailer and its ability to balance brand strength with cost discipline. This context is important when thinking about why the share price has held onto large multi year gains while still moving around in the short term.
• On our checklist of six valuation tests, Williams-Sonoma scores 2 out of 6 for being potentially undervalued. You can see this in more detail in its valuation score. Next, we will look at how traditional methods like P/E, cash flow based estimates and peer comparisons line up, before finishing with an approach that can give you an even clearer read on value.

Williams-Sonoma scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Williams-Sonoma Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth today by projecting its future cash flows and then discounting those back to a present value using a required return.

For Williams-Sonoma, the model used here is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The company’s latest twelve month Free Cash Flow is about $1.1b. Analysts provide detailed forecasts for the next few years, and Simply Wall St extrapolates these further out, with projected Free Cash Flow of about $1.8b in 2035 according to the ten year path provided.

Pulling all of those projected cash flows together and discounting them back gives an estimated intrinsic value of US$214.04 per share. Compared with the recent share price of US$206.79, the DCF output points to an implied discount of about 3.4%, which suggests the stock is trading close to this model’s estimate of fair value.

Result: ABOUT RIGHT

Williams-Sonoma is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Williams-Sonoma.

Approach 2: Williams-Sonoma Price vs Earnings

For a profitable company like Williams-Sonoma, the P/E ratio is a useful way to think about value because it links what you pay directly to the earnings the business is currently generating. Investors usually accept a higher P/E when they expect stronger earnings growth or see the business as lower risk, and a lower P/E when growth expectations or perceived risks are higher.

Williams-Sonoma currently trades on a P/E of 21.8x. That sits above the Specialty Retail industry average of about 20.5x, but below the peer group average of 24.7x. To go a step further, Simply Wall St calculates a proprietary “Fair Ratio” of 17.1x for Williams-Sonoma, which is the P/E level suggested by factors such as its earnings growth profile, industry, profit margins, market cap and risk characteristics.

This Fair Ratio can be more informative than a simple comparison with peers or the industry, because it is tailored to the company’s own fundamentals rather than a broad group that may have different growth or risk profiles. With the current P/E of 21.8x sitting above the Fair Ratio of 17.1x, this approach points to the shares being priced on the richer side.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Williams-Sonoma Narrative

Earlier we mentioned that there is an even better way to understand valuation, so Narratives on Simply Wall St let you turn your view of Williams-Sonoma into a clear story that links assumptions about future revenue, earnings and margins to a forecast and a Fair Value, compares that Fair Value with today’s price to help you judge whether the stock looks expensive or cheap for your purposes, and then keeps that view refreshed as new news or earnings arrive. For example, one investor on the Community page might build a more cautious Williams-Sonoma Narrative that lines up with a Fair Value around US$155, while another might use a more optimistic Williams-Sonoma Narrative closer to US$245. Both can quickly see how their story, numbers and Fair Value estimate stack up against the current market price.

For Williams-Sonoma however we will make it really easy for you with previews of two leading Williams-Sonoma Narratives:

🐂 Williams-Sonoma Bull Case

Fair Value: US$245.00

Current price vs this Fair Value: about 15.6% below that Fair Value

Revenue growth assumption in this narrative: 4.12% a year

• Assumes Williams-Sonoma keeps building on its e commerce strength, in house brands and supply chain improvements to support revenue growth and margins.
• Takes analyst forecasts that earnings could reach about US$1.2b by 2028 and applies a higher future P/E of 25.6x, above the current US Specialty Retail industry level of 19.0x.
• Arrives at a Fair Value of US$245 based on slightly higher modeled revenue growth, a modestly lower discount rate of about 8.53%, and a higher future P/E multiple, with ongoing buybacks helping earnings per share.

🐻 Williams-Sonoma Bear Case

Fair Value: US$155.01

Current price vs this Fair Value: about 33.4% above that Fair Value

Revenue growth assumption in this narrative: 3.57% a year

• Assumes only modest revenue growth and slightly lower profit margins, with tariffs, macro risks and inventory decisions weighing on earnings and returns.
• Uses a lower future P/E multiple of about 17.49x and a discount rate of about 8.51%, reflecting caution around how much is already priced into the shares.
• Arrives at a Fair Value of about US$155, with analysts in this camp viewing the current price as richer and expecting less upside, even though they still model some business improvement.

These two Williams-Sonoma Narratives give you a clear range for what different analysts think the stock could be worth and why. This can help you decide which story lines up better with your own expectations for the business, its risks and the price you are willing to pay.

Curious how numbers become stories that shape markets? Explore Community Narratives

Do you think there's more to the story for Williams-Sonoma? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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