Don’t Take a Long Walk off a Short Pier

Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Pier 1 Imports (NYSE: PIR) has seen stock appreciation of approximately 240% over the past three years. It has outperformed both Bed Bath & Beyond (NASDAQ: BBBY) and Williams-Sonoma (NYSE: WSM) over the same period, which have seen gains of approximately 99% and 137%, respectively. However, this doesn’t mean Pier 1 Imports is likely to be the best investment option going forward.

The housing market

Obviously, all these companies perform better when the housing market is improving. And while mortgage rates had been increasing, they have now declined two weeks in a row. Still, this is generally bullish for all involved.

The 30-year fixed rate currently stands at 4.20%. This is excellent news for the housing market and it should help to maintain demand. While its impossible to predict how long rates will stay low, based on recent trends, it looks as though they should remain below 6% for the remainder of this year. Research shows, as long as rates are below 6%, demand will be high.

According to National Association of Realtors, existing home sales declined 1.2% year over year in June, but this trend has the potential to reverse itself thanks to the recent decline in rates. 

Online presence

According to Alexa.com, Pier1.com ranks No. 1,983 in the United States for online traffic. Page-views per user have declined 4.79% over the past three months, but this stat may be related to an anticipated decline in the housing market. Now that rates have dropped, this decline should be postponed.

Regardless of trends, Pier 1 doesn’t have as much online exposure as peers. For instance, Bedbathandbeyond.com has an online traffic rank of No. 350 in the United States, and Williams-sonoma.com has a rank of No. 1,407. Which makes sense because Pier 1 Imports is much smaller than its competition.

Company culture

According to Glassdoor.com, Pier 1 employees have rated their employer a 2.9 of 5, which is subpar. An unimpressive 49% of employees would recommend the company to a friend, and only 63% of employees approve of CEO Alex W. Smith. The most common complaints from employees include: a high turnover rate, not enough hours, low pay, and being trained to push the company's credit card, which annoys customers.

These are all negatives, but if you’re looking at it from an investing standpoint, then you want labor costs to be low and you want that credit card to be pushed. However, happy employees make for happy customers, and if the credit-card pushing is extreme, then it will annoy some customers enough that they won’t return.

Bed Bath & Beyond and Williams-Sonoma also score low on Glassdoor.com, coming in with employee ratings of 2.8 and 2.9, respectively. The negative comments for Bed Bath & Beyond are all over the map, while consistent positives include; quality training and product knowledge. For Williams-Sonoma, employees widely agree that the products are of very high quality, but often complain about old technology, bullying managers, credit-card pushing, and a lack of support from the corporate level.

Pier 1 vs. peers

All three companies saw revenue and earnings improvements over the past three years. Additionally, all three companies are similar in many areas.

 

Pier 1Imports

Bed Bath & Beyond

Williams-Sonoma

Trailing P/E

19

16

22

ROE

26.23%

26.23%

21.25%

Profit Margin

7.59%

9.14%

6.46%

All three companies also own stellar balance sheets. But, the dividend story is different in each case. Pier 1 Imports currently yields 0.80%, Williams-Sonoma yields 2.10%, and Bed Bath & Beyond doesn’t offer any dividend. Based on Pier 1 Imports current growth trends and ability to control debt, dividend increases are possible.

Conclusion

As long as low interest rates continue to drive the stock and real estate markets higher, Pier 1 Imports has potential for appreciation throughout the second half of the year. On the other hand, Bed Bath & Beyond and Williams-Sonoma have performed better recently, and Bed Bath & Beyond has always been a strong performer.

When the stimulus ceases and interest rates increase, Pier 1 Imports may falter. In that environment, Bed Bath & Beyond should be the safest of the three thanks to its size, customer service, brand loyalty, and ability to attract different types of shoppers. 

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond and Williams-Sonoma. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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