Sotheby's: Is The Highest of High End Still Working?
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Are the One Percenters still buying art and collectibles? Is the high end of the barbell trade still working? On Aug. 7, Sotheby’s (NYSE: BID), the world famous auctioneer, reports and should tell the tale of how the richest of the rich feel about the global economy.
The Pulse of the Wealthiest
Sotheby’s is a somewhat volatile stock moving closely with the fortunes of the stock market and with other high-end stocks like Tiffany & Co. (NYSE: TIF), Saks (NYSE: SKS) and Coach (NYSE: COH). When Coach reported on July 31 and disappointed because of slowing North American sales, the stock plunged. But since Asian sales, specifically China, were up 60% Sotheby's climbed up after the shellacking (pun intended) it took after an analyst downgrade because a strong Asia is good for Sotheby's. See chart:
Chart courtesy of Yahoo! Finance
But Sotheby’s is the highest of the high end, operating in a rarefied world of authenticated art, antiquities, jewelry and collectibles that most of us will only see in movies. Their market is difficult to analyze and interpret with prices far outstripping that of a ring at Tiffany’s, a Coach purse or a Saks Fifth Avenue dress. Sotheby's 52-week range is $25.00-$41.24 and has a P/E of 12.90, a PEG of .77 and a 1.10% yield.
Sotheby’s at 268 years old is the most venerable and senior of companies listed on the New York Stock Exchange. Institutions love its longevity and the prestige of owning Sotheby’s and hold 93.8% of the float with insiders holding 1.18% and a short float of 11.4%.
Sotheby’s appears in the headlines frequently with record prices for various artworks and collectibles like the recent sale of Edvard Munch’s painting “The Scream’ for $119.9 million and record prices for Basquiat and Joan Miro works. Along with its main competitor, privately held Christie’s, the two dominate the international art market. Other parts of Sotheby’s business that are not so well known are their very high end realty division and a retail wine website. Sotheby's has a profit margin of 19.38%.
These headline making auctions don’t tell the whole story as Sotheby’s stated in mid-July that auction sales totaled $2.44 billion in the first half for a decline of 15.8% year over year. Insiders have been selling at a 2:1 ratio to purchasing over the last year.It has $466.9 million in debt with $442.72 million in total cash. These three facts may make you think twice before making a bid.
The Pulse of the Asian Economy
Sotheby’s was recently downgraded in mid-July by George Sutton, analyst at Craig-Hallam, from buy to hold with a reduction in the price target from $40.00 to $35.00. It is currently trading at $30.13. This was based on expectations of a cooling Asian market for collectibles and art. This slowdown in the Chinese economy in particular has been mentioned anecdotally with the casino gaming stocks that have a presence in Macau like Las Vegas Sands and Wynn Resorts seeing high rollers asking for more time to pay off gambling debts.
Like the casinos, Sotheby’s is a tell on the health of wealth in Asia as well as an early warning system on the high end luxury market. In any case, Tuesday’s earnings report will enlighten us and the market will hold its breath for this view into the soul of high end consumer confidence as well as Asian economic strength.
If Sotheby’s reports good numbers only then would I consider buying the stock and if it doesn’t then expect these other high end names to droop in sympathy and possibly some of the Chinese and Macau gaming stocks as well. Nontheless, if you truly believe the global economy is picking up then Sotheby's is a long-term name to own as the rich will feel richer and more likely to bid up Sotheby's.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Coach and Tiffany & Co. Motley Fool newsletter services recommend Coach and Sotheby's. 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. If you have questions about this post or the Fool’s blog network, click here for information.