Should you invest in Signet Jewelers shares as Wells Fargo reiterates overweight?

On Tuesday, Signet Jewelers Ltd (NYSE:SIG) shares surged 2.3% after Wells Fargo reiterated its overweight rating following a meeting with management. The firm established Signet Jewelers to be one of the few companies in the industry where the current supply chain challenges have no material impact on the business.

In a note to investors, Wells Fargo wrote: 

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The company has no exposure to Vietnam, placed orders early with vendors, has less reliance on cargo ships for product transportation, and has a partially vertically integrated supply chain.

It also cited the company’s differentiation strategy has helped it gain more market share, adding that the overall slowdown of the jewellery industry will have a lesser impact on SIG than originally feared.

Signet Jewelers shares are up 211% this year and nearly 330% over the last 12 months.

Signet looks undervalued

From an investment perspective, Signet Jewelers trade at an exciting price-earnings ratio of 8.19, despite adding more than 200% in market value this year. Therefore, value investors could still find the stock as an exciting opportunity amid the bull run.

However, the company faces short-term growth constraints, with analysts expecting earnings per share to plummet by more than 166% this year, before sinking further by 16.27% next year. Therefore, growth investors may opt against buying the stock now.

Is a pullback imminent?

Technically, Signet Jewelers shares appear to be trading within an ascending channel formation in the intraday chart. As a result, the stock has surged closer to the overbought conditions of the 14-day RSI.

Therefore, it could be poised for a short-term pullback before resuming its bull run. As such, investors could target short-term pullback profits at about $79.52, or lower at $73.49. 

However, if the upward movement continues, it could find resistance at $92.16, or higher at $98.03.

It could be time to cash out

In summary, although Wells Fargo retained an overweight rating on SIG shares after meeting with management, the stock appears to be facing solid resistance around the $86.00 level. 

Moreover, the company’s growth prospects are less exciting despite its compelling valuation multiples. Therefore, it could be time to take some profits while the price is still high.

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