We recently compiled a list of the 10 Best Home Appliance Stocks to Invest In. In this article, we are going to take a look at where Williams-Sonoma, Inc. (NYSE:WSM) stands against the other home appliance stocks.
The global home appliances market, estimated by Fortune Business Insights to be worth $708.15 billion in 2023, is expected to expand at a CAGR of 6.20% from $743.56 billion in 2024 to $1,203.11 billion by 2032. In terms of market share, North America accounted for 32.51% of the home appliances market in 2023.
The market is expanding more quickly due to consumer demand for energy-efficient and technologically advanced home appliances. A Parks Associates consumer survey in 2022 shows that 38% of homes own one or more smart home devices, which represents a slight 2% rise from the previous year. In 2021, about 30% of customers bought a smart home gadget, and 44% of US households wanted to do the same in 2023. Consumer interest in the expanding array of Internet-connected gadgets, such as energy management programs and smart home security systems, is still high. The user experience is further enhanced by improved mobile integration.
Parks Associates research director Chris White pointed out how customer expectations are rising and how demand for integrated smart home experiences is expanding. Out of 10,000 houses that participated in the survey, 88% had access to the Internet, 54% had a connected health device, 40% had a security system, and 56% had a smart TV. However, concerns about security and connectivity are growing among manufacturers as more devices find their way into homes and offices.
Secondly, instead of using traditional middlemen, more and more consumers are opting to purchase directly from manufacturers of household appliances. According to PWC’s June 2023 Global Consumer Insights Pulse Survey, the majority of customers (63%) report having bought products straight from a brand’s website and anticipate this percentage to rise. Another 29% of consumers state that, while they haven’t done so yet, they are thinking about going direct-to-consumer.
Another study by J.D. Power 2023 named U.S. Appliance Satisfaction Study reveals that 75% of appliance purchases occur on the first visit to the store and that nearly three-fourths (71%) of home appliance transactions take place in-store. Even with 29% of purchases made online, the majority of consumers still prefer to see the equipment in person.
Last year Christina Cooley, home intelligence lead at J.D. Power, stated:
“This year’s data shows us that 56% of home appliance shoppers are doing their research online before heading in store to purchase,” “Though price is almost always going to be the main driver of whether someone decides to purchase an appliance or not, one-third of buyers did not purchase because they were seeking specific options and features, and one-fifth indicated they couldn’t purchase, as their desired appliance wasn’t in stock.”
According to the American Customer Satisfaction Index Household Appliance and Electronics Study of 2024, with slight drops in both product and service quality, the household appliance market—which includes washers, dryers, dishwashers, refrigerators, ranges/cooktops/ovens, and over-the-range microwaves—falls 1% to an ACSI score of 80. The only appliances that have grown year over year are dishwashers and refrigerators (both up 1% to 80), with the range/oven/cooktop category seeing the largest loss, falling 4% to 79.
Jamie Rosenberg, Associate Director – Global Household and Personal Care, stated:
“The impact of inflation on the major household appliance market is both profound and complex. Many low-income consumers are delaying upgrades, but for 54% of buyers, breakdowns are the biggest purchase driver. When that happens, demand is relatively inelastic. When we add the impact of mid- to upper-income consumers who are still unleashing pent-up demand from supply constraints over the past three years, we have a market growth rate that is well above normal. Looking ahead, connected appliance innovations that create a convergence of reduced operating costs, and enhanced performance, convenience and sustainability will drive a new wave of trading up that keeps market growth high over the next five years.”
Methodology:
We sifted through holdings of home appliance ETFs and online rankings to form an initial list of 20 home appliance stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
An interior of a modern home with a wide selection of cookware, tools and cutlery on display.
Williams-Sonoma, Inc. (NYSE:WSM)
Number of Hedge Fund Holders: 39
Williams-Sonoma, Inc. (NYSE:WSM) is a $300-billion-domestic-home-category and $450-billion-international-home-market leader with a retail and direct-to-consumer presence. The company is concentrating on increasing its exposure in the B2B ($80 billion total addressable market), marketplace, and franchise categories. Pottery Barn (184 stores) sells casual home accessories, while Williams-Sonoma (156 stores) offers high-end cooking supplies. For young professionals, West Elm (121 stores) is a new concept, and Rejuvenation (11 stores) sells lighting and household items. Mark & Graham and Greenrow are examples of brand extensions, as are Pottery Barn Kids and PBteen (45 stores). Additionally, the company offers a business-to-business division that provides help for both home and large-scale commercial projects.
In the $80 billion US business-to-business market and the $750 billion worldwide home industry, Williams-Sonoma, Inc. (NYSE:WSM) has carved out a little niche for itself. The majority of its brands have historically been introduced naturally by the company into underserved markets, which has helped to raise some brand awareness and promote both top and bottom-line growth. Customer loyalty and astute marketing and merchandising are key components of its business-driving strategy, and the company benefits from a vast archive of customer analytics dating back to its catalog days. Its efforts to penetrate adjacent categories should be aided by this in maintaining its market dominance.
Max Rakhlenko, an analyst with TD Cowen, raised the company’s price objective for WSM from $150 to $160 while maintaining a buy recommendation for the company’s shares. The furniture industry is expected to face substantial challenges in the near future, but the company is optimistic about its medium-term prospects due to its improved operational performance and stronger business than it was before the pandemic, when it was dependent on self-inflicting promotions.
West Elm Kids, Emerging Brands, and B2B development are some of Williams-Sonoma’s growth drivers that Jonathan Matuszewski highlighted. These initiatives might increase EPS and result in a P/E re-rating. Despite great profitability, the company trades at a 20% discount to peers with higher margins, which is consistent with a buy rating.
Despite a 3.3% YoY decline in comparable brand revenue in Q2 2024, the firm raised its operating margin estimate to reach between 17.4% and 17.8%.
Leonard Green’s Leonard Green & Partners is among the largest shareholders in the company, with 3,224,030 shares worth $455.18 million.
Overall WSM ranks 5th on our list of the best home appliance stocks to invest in. While we acknowledge the potential of WSM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.