WILLIAMS-SONOMA, INC. (WSM): what the price requires

Generated: 2026-07-14 · Exported: 2026-07-17 · Source: https://boothcheck.com/report/WSM

Headline

Field	Value
Ticker	WSM
Company	WILLIAMS-SONOMA, INC.
Current price	$216.68/sh

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Field	Value
Inversion basis	whole-company
Operating margin needed	18.3%
Operating margin today	16.9%
Margin expansion implied	+1.4pp
Implied growth	31.6%
Multiple paid	21x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 11.7% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~5.8pp.

Reconcile: at the x-ray's 9.3% required return this reads ~17%/yr; the models below use their own rates.

How unusual the bet is: elevated

Reference	Value
vs own history	+0.54σ
cohort percentile (of 210 peers)	62
sustained it ~5 years at this level	23%
implied end-window share	0%

Valuation X-Ray

Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Family	Median price/FV	Models	Reads
Asset	1.78x	4	expensive
Earnings	2.52x	5	expensive
Relative	1.28x	5	expensive
Growth	1.46x	3	expensive

Families that call it expensive: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.7%); the inversion above states its own rate.

Per-Model Detail (n=17)

Model	Family	FV	Price/FV	Applicable	Methodology
DCF Perpetual Growth	Growth	$113.64	1.91x	yes	FCF base $1.1B, growth 2% (input: historical growth), terminal g 1.8%, WACC 8.7%, 5yr projection
DCF Exit Multiple	Growth	$185.39	1.17x	yes	Exit EV/EBITDA: 17.2x / 19.2x / 21.2x (bear / base = today's held flat / bull), 5yr
Relative Valuation	Relative	$169.03	1.28x	yes	P/E 20x (static sector reference · 2026-04), scenarios: 16.8x / 20.0x / 23.2x (bear / base = reference held flat / bull), EV/EBITDA 14x
Simple DDM	Growth	—	—	no	—
Two-Stage DDM	Growth	—	—	no	—
Simple Excess Return	Asset	$98.15	2.21x	yes	BV/sh $15.60, ROE (TTM) 58.2%, ke 9.3%
Two-Stage Excess Return	Asset	$326.55	0.66x	yes	5yr excess ROE then converge to ke=9.3%
Discounted Future Market Cap	Growth	$148.84	1.46x	yes	Rev $7.9B, growth 2% (input: historical growth; tapered), Terminal P/S: 2.8x / 3.3x / 3.8x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair Value	Relative	$312.20	0.69x	yes	EPS $8.92, growth 35% (input: historical EPS growth), PEG=0.68 (Undervalued)
Margin Trajectory	Growth	—	—	no	—
Earnings Power Value	Earnings	$85.86	2.52x	yes	Normalized EBIT (5y avg op income, one-time charges added back) $1.41B × (1−23%) / WACC 8.7% → EPV (no growth)
Residual Income	Asset	$160.80	1.35x	yes	BV $15.60 + 5yr PV of (ROE (TTM) 58.2% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham Number	Asset	$55.95	3.87x	yes	√(22.5 × EPS $8.92 × BVPS $15.60) — Graham's conservative floor
EV/EBITDA Relative	Relative	$153.06	1.42x	yes	EBITDA $1.47B × sector EV/EBITDA 14.0x
FCF Yield	Earnings	$79.67	2.72x	yes	FCF $1093.4M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF Yield	Earnings	$69.24	3.13x	yes	SBC-adj FCF $0.98B (FCF $1.09B − SBC $0.12B) capitalized at Kₑ
Ben Graham Formula	Earnings	$287.82	0.75x	yes	EPS $8.92 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/B	Asset	$9.78	22.16x	yes	BV $15.60 × (ROIC 5.5% / WACC 8.7%) (excluded from median)
P/Sales Sector	Relative	$98.61	2.20x	yes	Revenue $7.88B × sector P/S 1.5x
PEG Fair Value	Relative	$334.50	0.65x	yes	EPS $8.92 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x
Earnings Yield	Earnings	$96.43	2.25x	yes	EPS $8.92 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations Multiple	Relative	—	—	no	—
Clinical Phase NPV	Growth	—	—	no	—
Merton	Asset	—	—	no	—
V5 Mechanical	—	—	—	no	—

Solvency

Field	Value
Net cash	$651.6m
Net debt / NOPAT (after-tax)	-0.68x (net cash)
Net debt / operating income (pre-tax)	-0.53x (net cash)
Share count CAGR (buyback)	-4.7%
Burning cash	no

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

At $226.95 the price works out to roughly 22x company-wide operating income, which inverts into about 34% operating growth a year for five years. The rate is within what the company has delivered in good years; the stretch is sustaining it for five.

The business throws off remarkable returns. Operating margin runs around 18%, return on equity on a trailing basis is well above 50%, and the company holds net cash of about $650 million while shrinking its share count near 5% a year.

No standard valuation lens reaches the price. The DCF, peer-multiple, and earnings-power models all land below today's quote, with the blended estimate near $141. The bet is that the brand portfolio keeps comping positive and defending its margin in a discretionary category.

Bull Case

The moat shows up in the returns, not the slogans. Williams-Sonoma runs an operating margin around 18%, far above the specialty-retail norm, and a trailing return on equity north of 50%, the kind of profitability that only comes from real pricing power and a tightly run vertical model. The portfolio, Williams Sonoma, Pottery Barn, and West Elm, is a set of design-led brands the filing describes as bringing people together around food and home (FY2025 10-K, accession 0001628280-25-015037). The company designs its own product, controls a large e-commerce channel, and earns brand loyalty that lets it hold price where commodity furniture sellers discount. That structural advantage is why the excess-return and residual-income models, which reward a return on equity this far above the cost of capital, land well above the asset-only models.

The near-term results show the moat working through a soft demand backdrop. In the first quarter of fiscal 2026 comparable brand revenue grew 4.8%, with e-commerce comps up 4.8% and retail comps up 4.7%, and management noted every brand delivered a positive comparable result. Operating margin came in at 16.2% in the quarter and the company reiterated full-year guidance of a 17.5% to 18.1% operating margin on comps of 2% to 6%. That is a notable swing from fiscal 2025, when the filing recorded a company comp decline of 1.6% driven by customer hesitancy toward furniture purchases (FY2025 10-K, accession 0001628280-25-015037). The brand is taking share as the category recovers.

The balance sheet and capital return reinforce the quality. The company holds roughly $650 million of net cash, carries no net debt, and generated more than $1 billion of free cash flow on a trailing basis. It raised the quarterly dividend 15% to $0.76, its 17th consecutive annual increase, and has been buying back stock steadily, shrinking the share count near 5% a year. Goldman Sachs upgraded the stock to Buy with a $218 price target after a pullback, and analyst targets cluster in the $204 to $230 (June 28, 2026) range. Against discretionary peers like Ulta and Signet, Williams-Sonoma's combination of margin, return on capital, and a net-cash balance sheet is the standout, which is why the market awards it a premium multiple.

Bear Case

The balance sheet is pristine, and that is precisely what makes the fragility easy to underestimate. Net cash and a high return on equity describe the company in a normal demand environment, but the return on equity is flattered by a tiny book-equity base of about $16 per share, the product of years of aggressive buybacks. A company that has bought its book down that far has less accounting cushion to absorb a bad year, and the return on invested capital, which the model puts near 5.5%, is far more pedestrian than the headline return on equity suggests once you account for the full capital base. The earnings-power value, which capitalizes normalized operating profit with no growth, lands near $86, and the asset-anchored Graham number lands near $56. Strip out the growth assumption and the standard frames put the business well below half today's price.

The demand picture is the live risk because the product is discretionary and big-ticket. The filing's own prior-year experience is instructive: fiscal 2025 saw a company comp decline of 1.6% driven by customer hesitancy toward furniture purchases (FY2025 10-K, accession 0001628280-25-015037). Furniture and home decor are among the first purchases consumers defer when housing turnover slows or confidence dips, and a single weak holiday season can turn the recent positive comps negative. The price already assumes operating growth near 34% a year sustained for five years, and historically only about 23% of comparable fast-growers held that pace that long. The recent quarterly comp of 4.8% is healthy but nowhere near the 34% the price embeds.

The cost side carries a specific, dated threat: tariffs. Williams-Sonoma sources heavily from overseas suppliers, and the filing warns that currency devaluation or trade friction could cause foreign suppliers to demand higher prices to offset lost profits (FY2025 10-K, accession 0001628280-25-015037). Management has flagged roughly $80 million of incremental tariff cost embedded in inventory, front-loaded into the first half of fiscal 2026, which presses directly on the gross margin that supports the premium valuation. With no valuation family reaching today's price and consensus skewed toward Hold (14 Holds against 7 Buys), the downside case is a margin squeeze meeting a demand stumble, which would compress both the earnings and the multiple at once.

Valuation

No valuation family reaches the price, which is the clearest single read here. Against the $226.95 quote, the DCF perpetual-growth model lands near $113, the earnings-power value near $86, the peer P/E model near $169, the EV/EBITDA-relative model near $153, and the free-cash-flow yield near $80. The blended X-ray estimate sits near $141. Only the two-stage excess-return model, which extrapolates the trailing 58% return on equity forward, reaches above the price, and that single optimistic method is the exception that proves the rule. On assets, earnings power, peer multiples, and even forward growth, the price is rich.

Inverting the price makes the bet explicit. At today's level the market is paying about 22x company-wide operating income, which the model translates into operating growth of roughly 34% a year for five years, discounted at an 11.9% cost of capital with 4% terminal growth, where each percentage point of cost moves the implied growth about six points. The near-term growth rate is within what the company has delivered in strong years, but sustaining 34% for five straight years is the stretch, and only about 23% of comparable fast-growers managed it.

The operating-income basis the inversion prices and the EDGAR figure diverge by about 13%, so the exact multiple shifts a little with the basis, but the conclusion holds across both. This is a high-quality business trading at a price that assumes the recovery now underway compounds at an exceptional rate for years. The premium is earned by the margin and return profile; whether it is justified depends on the durability of demand in a discretionary category facing a tariff-driven cost headwind.

Catalysts

The May Q1 fiscal 2026 report was the recent catalyst and it was strong: comparable brand revenue up 4.8%, EPS of $1.93, net revenue of $1.81 billion, and every brand positive on comps, with management reiterating full-year guidance. The next quarterly report is the key event, since the price needs comps to stay positive and the operating margin to hold inside the 17.5% to 18.1% guided range while tariff costs flow through the first half.

Tariffs are the catalyst that cuts the other way. Management flagged roughly $80 million of incremental tariff cost front-loaded into the first half of fiscal 2026, so the H1 gross margin is the number to watch; if the company offsets it through pricing and supply-chain work without losing comp momentum, the bears lose their main lever. Capital return is a steady positive: the 15% dividend increase to $0.76 marks the 17th straight year of raises, and continued buybacks keep shrinking the share count. Analyst sentiment improved with Goldman's upgrade to Buy at a $218 target and Morgan Stanley's raise to $210, though the overall tape leans Hold. The chief risk to the timeline is a consumer pullback in big-ticket home goods, the same furniture hesitancy that drove the fiscal 2025 comp decline, arriving at the same time tariffs pressure margins.

Sources: Williams-Sonoma Q1 FY2026 results (IR); BusinessWire: WSM strong Q1 2026 results; 24/7 Wall St: Goldman upgrades WSM to Buy; Public.com: WSM analyst forecast; Motley Fool: WSM Q1 2026 transcript.

Peer Cohorts (Per Segment, With Filing Citations)

Williams-Sonoma (consolidated) (reported)

• RH (RH)
• (no filing in the citation store)
• W (WAYFAIR INC.)
• (no filing in the citation store)
• LZB (LA-Z-BOY INCORPORATED)
• (no filing in the citation store)
• SGI (SOMNIGROUP INTERNATIONAL INC.)
• (no filing in the citation store)
• ULTA (Ulta Beauty, Inc.)
• (no filing in the citation store)
• SIG (SIGNET JEWELERS LIMITED)
• (no filing in the citation store)
• SBH (SALLY BEAUTY HOLDINGS, INC.)
• (no filing in the citation store)
• VSCO (VICTORIA'S SECRET & CO.)
• (no filing in the citation store)

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.