Were Diamond Companies Worth the Investment?

RAPAPORT… What parameters would one use to assess a company’s performance? For our analysis, sales provide the best indication of how a business is doing. Taking that a step further, revenue generated across a group of companies within a sector provides valuable insight into the market’s performance.

Investors in stocks consider many more factors. Expectations for the company — and for the equity markets as a whole — largely influence whether they will buy or sell. They certainly did not base their trading decisions on short-term revenue performances in 2020, when demand fell across all segments of the diamond and jewelry industry yet share prices rose.

The Rapaport Diamond Jewelry (RDJ) index, a theoretical stock list comprising the industry’s top 10 public companies by revenue, gained 11.5% during the year. It outperformed the Dow Jones Industrial Average, despite weakness in the individual companies’ sales.

That is, share prices increased even as the group’s combined revenue fell 16% for the year. The declines were no surprise given the impact of Covid-19. Arguably, the companies’ 2021 performances will provide a better assessment of how they navigated the pandemic, as the strategies they implemented will have time to bear fruit.

In the January issue of the Rapaport Research Report, we analyze how the RDJ members responded to the coronavirus crisis, shedding light on the trends that emerged in 2020 and what we can expect for the year ahead. The important takeaways include:

1. Digital is here to stay, and companies that invested in e-commerce capabilities — as most on our list did — were better prepared for the crisis than those that did not.

2. China has seen a robust recovery. Luxury shoppers on the mainland are spending locally rather than overseas due to limitations on travel. Luxury houses will benefit from their stores in China, but will struggle in other places that rely heavily on tourist traffic.

3. Positive momentum in rough sales will help the mining companies at the start of 2021, but it’s not certain if the improvement is sustainable. The diamond miners are walking a fine line between maintaining a supply-demand balance in the market and needing to deplete their excess rough inventory.

Revenues look likely to rise in 2021, given that the basis of comparison will be 2020’s low numbers. Perhaps this prospect of future growth is what the rising RDJ suggested last year. Confidence is strengthening across all sectors, with people becoming more accustomed to doing business during the pandemic. They have a better sense of what to expect despite the continued spread of the virus, and that sentiment will only improve as more receive the vaccine.

Perhaps that will stimulate further increases in diamond and jewelry stocks. More importantly, let’s hope it will inspire better sales, too.

The Rapaport Research Report presents proprietary data on polished diamond prices, along with market intelligence and analysis. Subscribe to the report here.