Red Flag Alert – Sounding the Siren on Signet

Also, an update on solar and Enphase

After reporting earnings a month ago, Signet’s stock got pummeled after missing expectations on revenue, earnings and comp-store sales... while also providing lower-than-expected guidance.

We believe this could be the start of even more shimmer coming off Signet’s shine, which is why we’re adding it to the Red Flag Alerts.

Our Thesis

In short, it appears to us that investors are underestimating several important parts of the Signet story, notably...

• The impact of lab-grown diamonds and their impact on the pricing of diamonds in general.

• The slowdown in bridal sales, due to fewer people getting married.

• The impact of all of that on extended service agreements, or ESAs, which in turn can have an enormous impact on profitability.

• And just how difficult it can be to analyze some of the company’s numbers, especially tied to extended warranty-related deferred revenue, thanks to modifications in its revenue recognition policy over the past few years.

Before we go further, this quick note: I first me…