S&P 500 Update This Week: 2 Signals to Watch After Signet Jewelers' Earnings

Signet Jewelers (NYSE: SIG) shot higher following the release of its fiscal fourth quarter and fiscal 2026 earnings report. The parent company of Kay, Zales, Jared, and other jewelry brands significantly beat earnings.

Nonetheless, the report pointed to challenges as much as it did point of optimism. Amid this news, investors should remember two things about this consumer discretionary stock.

1. Margin pressures could drive this stock in the near term

Despite the stock gains, its financials offered a mixed picture. In the fourth quarter of fiscal 2026 (ended Jan. 31), sales of $2.35 billion fell by 0.7%. The one bright spot, adjusted diluted earnings, came to $6.25 per share, well above the $6.09 per share estimate.

Still, challenges such as tariffs, commodity prices, or even consumer spending pressured its gross margins. Those came to $985 million, or 42%, slightly below the 42.6% in the same quarter last year.

Unfortunately for investors, Signet is impacted by tariffs, as the precious metals and diamonds on which it depends are often sourced outside the U.S. Also, commodity prices, especially gold, have fluctuated significantly in recent months.

2. A coming drop in its valuation could be bullish for Signet

Fortunately, one factor is on track to work in Signet's favor: valuation.

Its 12 P/E ratio appears compelling, especially when the S&P 500's average earnings multiple is 28. Also, it earned $250 million in the fourth quarter, well above the $101 million in the year-ago quarter.

In the previous year, asset impairments weighed heavily on earnings. Now, with those one-time charges greatly reduced, the higher earnings, and the forward P/E ratio just above 8, it's confirmed that it has become seriously undervalued.

Additionally, that valuation accounts for the 55% increase in the stock price over the last year. Hence, even with the stock flirting with multiyear highs, the stock should have limited downside.

Moreover, investors earn $1.40 per share in dividends annually, a 9% increase from last year. With that, its 1.6% dividend yield is above the S&P 500 average of 1.2% and gives shareholders a cash return while they wait for the stock price to rise. Amid that dividend and low valuation, Signet's stock is likely to increase in value if business conditions improve even modestly.

Signet stock should glitter in the long term

Under current conditions, Signet stock is more likely to rise than fall in the long term.

Admittedly, tariffs, commodity price fluctuations, and an uncertain economy are headwinds for this stock. That could put further pressure on gross margins, and after the considerable gains made over the last year, Signet stock could struggle in the near term.

However, due to its large asset impairments in the past, net income has risen sharply, giving Signet stock a very low P/E ratio. When also factoring in dividend returns and payout growth, Signet stock is in an excellent position to eventually resume its move higher.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.