Is Tiffany & Co (TIF) a Good Buy?

Luxury is back! With the continuing improvement in the U.S. economy, consumers are gradually becoming more willing to spend money on luxury items. For those who remember, manufacturers of luxury items enjoyed a huge rally for much of the 2000’s, then in 2008 when the economy tanked, anything that was not considered essential spending was regarded as a leper by the market. Tiffany & Co (NYSE:TIF) was no exception, finally bottoming at $16.70 in 2010, just about 22% of its current value. Clearly, the sky wasn’t actually falling and people still want nice things. If the economy continues to improve, like most analysts are suggesting, luxury manufacturers like Tiffany should do very well over the next few years.

Tiffany & Co. (NYSE:TIF)

Since the bottom in 2010, Tiffany’s revenues have come back with a vengeance, rising from $2.7 billion that year to over $4 billion expected for this year. The company is planning to open 15 new stores this year, adding to the 275 stores already open. Most of the company’s growth strategy is focused overseas, with seven of the new stores in Asia and three in Europe.

Currently, about half of Tiffany & Co. (NYSE:TIF)’s revenue comes from the U.S. and Canada, with Asia accounting for most of the rest. Europe is relatively underserved by Tiffany, which is surprising considering all of the fashion culture. This should provide a nice growth opportunity; especially if Europe’s economic issues get worked out in the coming years.

The Numbers

Tiffany & Co. (NYSE:TIF) may seem to be a bit expensive right now, at 23.5 times last year’s earnings, but don’t rush to judgment. Sales are expected to continue to climb, particularly in Asia, where the company’s sales rose 27% compared with the year before. Tiffany is projected to earn $3.48 per share for the current fiscal year (2014) and this is expected to rise to $3.96 and $4.48 for the next two years, for a consensus forward earnings growth rate of 11.3%.

Other Ways to Play It

The obvious alternative is to pick another retailer of luxury goods, such as Signet Jewelers Ltd. (NYSE:SIG), which operates jewelry stores under the Kay Jewelers and Jared names. Signet trades at 16.3 times last year’s earnings, with 10.2% forward growth projected. Bear in mind, however, that Tiffany & Co. (NYSE:TIF) pays a higher dividend yield of around 1.7%, which is sure to appeal to income investors.