Shares of Signet Jewelers (SIG 8.59%), the world's largest retailer of diamond jewelry, were getting a lift after a major investor urged the company to sell itself.

As of 11:20 a.m. ET, the stock was up 12.4% on the news.

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Could Signet be in play?

In a filing last night, activist investor Select Equity reported a 9.7% stake in Signet, sent a letter to the board, arguing that the stock is deeply undervalued, and called on the board to explore all strategic options available, including a sale.

Select Equity, which has held the stock since 2020, noted that same-store sales have declined for 11 years in a row, trailing the industry, and operating profit has declined in each of the last three years, falling short of guidance in the last two years.

It also blamed management for mishandling the transition of the James Allen and Blue Nile banner to a new technology platform. It levied other criticisms at management as well, charging it with poor capital allocation, and argued that new CEO J.K. Symancyk was installed hastily and that he doesn't have the proper experience for the job.

What it means for Signet

Signet stock has fallen sharply in the last three months after the retailer first missed estimates in its third-quarter earnings report and then cut its guidance in January for the all-important holiday quarter. Even with today's gains, the stock is down by nearly 50% from its peak in November.

Select Equity makes some good points. As the market leader, Signet should be outperforming the industry, though it has clearly struggled in recent quarters. As the investment firm argues, the stock is cheap relatively to cash flow, but it believes that reflects investors' poor perception of the company.

Considering strategic alternatives doesn't seem like a bad idea at this point for Signet. A private equity firm could be interested as a buyer, or there could be other maneuvers the company could make to increase the value.

Expect a response to the letter from the board at some point. If Signet chooses to consider a sale, the jewelry stock is likely to move higher.