An unconventional tech bet: Signet Jewelers Ltd.

Have you considered diamonds as a tech bet on stocks? 

I hadn’t until I read a post about Signet Jewelers (symbol SIG) in the jewelry space, that deals heavily in engagement rings. 

Now that might seem odd for a blog that focuses on technology stocks to talk about something so physical like jewelry and precious stones. But it’s not, really.

The pandemic crushed SIG’s stock price because it was a physical store retailer. You know, in malls and such. Remember those? But that’s not what makes this interesting or a tech investment. No, it’s this.

Signet’s pivot to e-commerce

They pivoted to an e-commerce store, and they’ve done it pretty well and quickly. And they’ve seen growth. 

They also own a lot of brand properties that you would recognize like Kay, Jerad, Zales and James Allen. They’re all national brands that most consumers would know, and that recognition doesn’t just fade away. They have staying power. And, yeah, those brands belong to SIG. And now it’s moving much of its transactions and sales online. 

Signet has some interesting tailwinds

And here’s the really interesting part: Online dating is on fire. That is directly related to SIG because they are in the love business. When people are going on their awkward first dates, even over Zoom, and, if something magical happens and they fall in love, that means magic will happen with SIG: They’ll get sales. 

They will sell jewelry and engagement rings by the stock-price-moving boatloads. 

I think people are dating more in these weird times because social distancing and isolating are causing us to realize that being in a relationship is a good thing. We aren’t designed to be alone. And being in all of that aloneness creates pent up demand for relationships, dating in particular. And the culmination of that is often marriage. 

And no matter what you’re opinion of diamonds is, people buy them when they’re in love and getting ready to get engaged. That’s the norm—even the expectation. 

That’s where SIG will do well. Inevitably some of those lovers will end up in one of Signet’s online stores and buy a rock to display their undying love in an expensive little (or not so little) stone. 

Customer behavior is changing

And buying something worth thousands of dollars online sounds absurd. But it isn’t. The behavioral trend is certainly in its favor. Just the other day, I bought a car, sight unseen. That’s right. I didn’t even test drive the vehicle before I wired over a lot of money to the dealer. Don’t worry; it worked out, and the car’s great. And consumers are doing this more and more. That’s why companies that sell cars exclusively online, like Carvana and Vroom, exist. So if people are willing to buy a car over the internet for thousands of dollars, it’s not a far step to get a diamond online either. 

And that’s where brand recognition shines. People will be far more willing to shop from brands they know. Covid is likely making that behavior even stronger since consumers are forgoing in-store buying. For consumers to buy big-ticket items online, it helps to have stronger branding, returns policies, and a greater ability to imbue trust. Signet with their brands does that. That branding is gold diamonds for a company that has it.

And that can flow down to investors who hold SIG stock. 

Signet’s competition

There are other brands that SIG doesn’t own but are recognizable like Blue Nile. There’s competition. But that doesn’t mean both of them can’t exist in the same universe and still win. They can. They can both make money and still exist fat and happy.

The jewelry business has always been fractured. There are thousands of mom and pop stores. Then you have the larger retailers and the national brands. And many have been doing just fine even with so many other jewelers. 

Closing thoughts

I don’t hold any shares of SIG at the moment, but I am watching it. It’s interesting. It’s been rising since it bottomed around $5 in March, while in the throes of pandemic fears. Before that, in November 2015, the price of the stock maxed out around $150. Yesterday it was hovering around $20, almost quadrupling since March. As long as it survives and truly makes the e-commerce work, there is a lot of upside for this stock.  

Of course, there’s risk. All bets are risky one way or another.

The point is to lower the amount of risk as much as possible by finding companies that can grow and dominate their markets and have favorable market conditions. And Signet certainly seems to have all of that going for it. 

And, maybe, if you invest well and you’re one of those lovebirds who bought an engagement ring, you might be able to get your money back on your engagement ring by investing in SIG. 

Don’t take my word for it though. Do your own research and talk to a professional advisor. 

Happy betting. 

John 

Why I Won’t Sell My Shopify Stock

Shopify is one of the biggest positions in my stock portfolio, and I believe it has an incredibly bright future. 

About two years ago, I bought the stock, but it was terrifying then. Around that time, a short seller, Citron, was on the scene and was putting reports about how Shopify was illegitimate and a “scheme.” It’s laughable now since they publicly announced that they were wrong about Shopify. But it wasn’t funny then—at all. Their words moved the price a lot. It felt like riding the worst rollercoasters ever, and, with each rise and nauseating dip, someone was taking or adding to my net worth. I hated it.

I’ve had a history with Shopify that extends beyond just as a person who owns their stock. I have a creative agency that has used Shopify to build online stores for our clients. And I’ve been well aware of Shopify’s power and ability for years. I saw first hand that businesses were making hundreds of thousands and millions of dollars on Shopify since we helped build them.

And you would think that after having that experience and doing further research on the company and seeing its incredible growth and climb into success, it would have given me the confidence to hold onto it when things with the stock got rocky, with Citron making waves. But it didn’t. I still got spooked.

When a stock price moves so violently down and you own it, it’s hard not to doubt. I even wondered if Shopify was a legitimate investment. And that says nothing about them and more about me, that I’m easily shaken. And I also knew that short-sellers are incented to make negative statements about the companies they’re shorting because they get richer when the stock price goes lower. But I still doubted.

I don’t think I sold my position, or if I did, I bought back in. Regardless, I own stock with the price from around that time. And, in one of my accounts it’s up 389%, another over 500%. And I don’t say this to brag. I only tell you this because it’s easy to sell when everyone else is. Getting scared out of a stock when the markets get turbulent, like the past couple of weeks, is common. 

But to get the gains, you have to go through the pain. And Shopify, I think, still has a lot more room to gain. 

It’s just getting started. The pandemic pulled the future of e-commerce closer. Some say it has sped up the move to online shopping by five years. No matter what you think, e-commerce isn’t going anywhere and will only continue to grow.

And retail as a whole is huge—like, massive. Global retail sales are over $23 trillion. $5 trillion of that is in the US alone. And retail is still growing. People aren’t going to stop buying things, even in a pandemic. Families still need diapers. People still need to eat. Socially distanced kids need toys. Some people are buying more, others less. But humans still need things. As long as that is the case, they will continue clicking and buying.

And yes, Amazon is huge, but even they can’t gobble up $23 trillion worth of business. There is plenty of space for competitors, or, better yet, alternatives. 

There are plenty of reasons why businesses wouldn’t want to sell on Amazon. Amazon doesn’t let other retailers own the channel, the distribution, not even the customers. When a brand sells on Amazon, they must play by Amazon’s rules and pay their fees and use their systems to tap Amazon’s customers. 

Shopify is different. When you build an online store there, it’s yours. The sales are yours; the customers are yours; the email list you collect is yours; the branding is yours. Sure, you pay to use Shopify’s services and platform. But it’s a pittance compared to starting without them. To build your new system and e-commerce site from scratch would cost bundles more. So using Shopify makes sense. 

My wife and I used Shopify to build a little online business selling vegan and gluten-free cookies. It took me less than a day to set up the website. Shopify’s free trial was risk-free, and all I had to do was spend my time putting the site up. And since then, we’ve been able to grow a business that seems to have real potential, slinging delicious, clean cookies, through the incredible power of Shopify. 

Not all e-commerce plays will win. For instance, Stitch Fix reported earnings a couple of days ago, and their stock tanked because their business model isn’t relevant at the moment. They dress women who want great outfits styled for them by professional stylists. But since people aren’t really going out, there’s no real need for anything other than the sweatpants we’re all wearing. 

Shopify isn’t Stitch Fix. 

They are launching new products that have a lot of potential. Last year they launched their fulfillment services, where they will store inventory and ship products for customers. It’s just like Amazon’s fulfillment service, except its from Shopify. And it has been a business-to-business company, meaning they have a product that helps other businesses. But now they’re trying out a B2C play, leveraging their stores, and listing them on an app. People can look for various products and stores by location or other filters to find interesting new products.

And they have a lot of stores. This site states that there are over five hundred thousand stores on Shopify, which amounts to $40 billion worth of sales. Those numbers are huge, but, I believe, they will only get bigger. The pie is growing, with e-commerce taking more and more market share from brick and mortar. And Shopify has great brands using their software. Allbirds, Shopnova, Kardashians, and many more are using them to power their online stores. And this gives Shopify a vast advantage over other platforms trying to make a play in this space. 

Lastly, I’ll mention that they have an app store that is mature with a healthy eco-system of developers building supporting software for Shopify and its customers. It’s a significant edge. Imagine the iPhone without apps. What would that experience be like without being able to open up an app to check your bank accounts, or play games, or take notes, or the thousands of other things people do on their phone? The Apple App Store set the iPhone apart. Shopify has the same thing. Except their apps help you get deliveries optimized and recorded, and figure out accounting and fulfillment, and set up a subscription system so vegans can buy your vegan cookies every week to get their fix. A mature app store is difficult to cultivate, and to have one already established only establishes Shopify as an incumbent that will be very difficult to dislodge. 

There are a lot of reasons to be afraid these days. But the more I consider this company, the more confident I get in its future. 

And plan on holding my position in Shopify for a long time. 


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