The Price Is Right for Sotheby’s
Hopes are rising that Sotheby’s recent rebound has more room to run
Spare a thought for the 0.1%.
The world’s ultrarich, many of whom hail from countries facing slowdowns or earned their fortunes from industries that are now slumping, have been a cautious bunch lately. The merely well-off seem less anxious and that shows in their favorite places to shop.
In 2014 and 2015, high-end auction house Sotheby’s lagged behind the S&P 500 by an awful 62 percentage points. Jeweler Tiffany & Co., which caters to a mass-affluent clientele, lagged behind the market by a mere 27 percentage points.
This year has been different so far. Sotheby’s is beating the market and trouncing Tiffany. With a new chief at the helm and amid many executive departures at Sotheby’s, hopes are rising for a turnaround. And earlier this year, it agreed to buy a blue-chip art advisory firm as a way to diversify its offerings beyond art auctions.
As New York’s auction houses kick off spring sales this week, Sotheby’s is poised Monday to report first-quarter earnings. There still won’t be much to write home about. Analysts polled by FactSet forecast Sotheby’s swung to a loss of 23 cents a share. Revenue is estimated to have dropped 20% to $125 million.
Sotheby’s, like other auctioneers, has been hampered by low oil prices, a strong dollar and concerns about China. Slumping financial markets have a tendency to crimp speculative investing, hurting the likes of art and luxury items.
China, in particular, has been a sore spot. China exposure for Sotheby’s, measured as a percentage of overall sales, has been falling in recent years. As of 2015, it was 15%, down from 19% in 2011. For Tiffany, sales in Asia-Pacific made up about one-fourth of overall sales last year, with China making up more than half of that.
Since Sotheby’s shares bottomed in February below $20, the lowest since 2009, they have jumped more than 40%. At 15 times projected earnings over the next 12 months, the stock still fetches a 10% discount to its average multiple of the past three years.
Sotheby’s is getting its house in order. Trading at half its 2014 high, investors can still get a bargain with a bid of their own.