Former chairman Gerald Ratner infamously called the jewellery made by Signet (then called Ratners) ‘total crap’ - Paul Hackett/Corbis News

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Diamonds may be forever, but there is no such guarantee for the businesses that mine, refine and sell them.

Over recent years, diamond prices have cratered. The Idex Diamond Index, which tracks sales of polished diamonds, has tumbled nearly 40pc since hitting a peak a little over three years ago as the growing popularity of artificial, lab-grown diamonds has depressed the price of “the real thing”.

This has been bad news for Signet Jewelers, the Bermuda-headquartered and US-listed group that is the world’s largest retailer of diamond jewellery. But a change in fortune could be afoot.

With a worldwide network of roughly 2,600 stores, Signet operates an array of retail brands, including Kay Jewelers, Zales and Jared – as well as H Samuel and Ernest Jones in the UK. It also sells upmarket watches.

Readers with long memories may recall that Signet was previously known as Ratners, until the then-chairman Gerald Ratner described one of its products as “total crap” in a speech that sent sales plummeting and shredded its corporate reputation.

While that particular crisis is far behind it, Signet Jewellers finds itself in a new hole – and weak diamond prices are only part of the problem.

The company’s sales have flatlined or fallen for the past three years, as have earnings before interest and taxes. Like-for-like sales from existing stores have been sliding while profit margins have shrunk.

Plenty of the difficulties the retailer faces are not of its own making. As well as the diamond issue, it has struggled as consumers have reined in luxury purchases as they feel the pinch of inflation and a deteriorating economic environment.

But some of Signet’s problems appear homegrown. It was wrong-footed by shoppers’ shift to more affordable jewellery by not having enough stock to cover demand, particularly over last year’s crucial Christmas trading period.

But a change in strategy by the company’s new chief executive, the 30-year retail veteran JK Symancyk, suggests there may be an opportunity to change the group’s performance by improving the speed of its decision-making and through smarter pricing. Trading could also benefit from a refresh of the store portfolio.

The potential for improvement makes Signet Jewelers a turnaround story following a period in which its share price has heavily lagged the wider market.

Significantly, some of the world’s best investors are betting the company can come good. The shares are held by seven of the world’s best fund managers, each among the top-performing 3pc of the more than 10,000 managers tracked by financial publisher Citywire. This has earned Signet a top AAA Elite Companies rating from Citywire, which rates companies based on their level of smart-money backing.

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Signet’s shares are available through the main UK stockbrokers, but buyers should be sure to fill in forms to minimise withholding tax and check for any additional dealing charges.

Symancyk’s plans to revive the company’s fortunes are already underway. In March, he set out ambitions to win share in its core “bridal” business – essentially wedding rings – and expand in fashion jewellery and more-affordable gifts. Meanwhile, some company functions, including sourcing, are being centralised.

Up to 150 lower-performing stores will be shut, as many as 200 strong-performing outlets in less-favourable shopping malls will be moved, and hundreds more will be renovated. Some of the senior management team has already been replaced.

Central to Symancyk’s aims is to build brand loyalty to improve both sales and margins. Crucially, he has embraced lab-grown diamonds, where sales have been growing strongly and returns can be considerably higher.

There are some early signs of progress. Sales, including on a like-for-like basis, rose over the three months to the end of April. So, too, did average selling prices, operating profits and margins.

If the recovery comes off, there is plenty of potential upside, with the shares valued at less than nine times forecast next year’s earnings. The company also has a strong balance sheet and has been actively bolstering capital returns through stock buybacks. This could boost the rewards for shareholders if a turnaround takes hold, as several of the world’s best fund managers are betting it will.

Questor says: Buy
Ticker: NYSE SIG
Share price: $81.25

Miles Costello is a contributing journalist for Citywire Elite Companies

Read the latest Questor column on telegraph.co.uk every weekday at 5am. Read Questor’s rules of investment before you follow our tips.

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