Picture supply: Getty Photographs
Many traders might say the clock could also be ticking on Watches of Switzerland (LSE:WOSG) shares as a lovely funding. This luxurious watch retailer has seen its share worth plummet almost 38% over the previous 12 months, considerably underperforming each its trade friends and the broader UK market. However does this current a golden alternative for savvy traders? Let’s take a better look.
Out of time?
The corporate operates as a retailer of luxurious watches and jewelry within the UK, Europe, and the US. Whereas the enterprise boasts a formidable heritage relationship again to 1775, its current efficiency has been lower than stellar.
The agency’s revenue margins have taken a big hit, dropping from 7.9% final 12 months to only 3.8% in the newest report. This compression in profitability is a crimson flag that shouldn’t be ignored. Moreover, the corporate’s share worth has proven excessive volatility, falling a large 37% in a single day again in January after releasing a revenue warning.
Most worrying for me, a discounted money stream (DCF) evaluation suggests the corporate is already overvalued by an unbelievable 287%. That is admittedly only one metric, however with traders already down considerably for the 12 months, I’d be nervous about additional difficulties forward.
Indicators of optimism
Nevertheless, it’s not all dangerous information for Watches of Switzerland. The corporate’s price-to-earnings (P/E) ratio of 16.3 instances is barely beneath the UK market common of 16.7 instances, suggesting it could be buying and selling at a good worth in comparison with its friends. Moreover, analysts are forecasting wholesome earnings development of 17.35% per 12 months.
The corporate additionally seems to be in good monetary well being, with extra cash than debt. This stable basis may assist the agency climate short-term storms and place itself for future development.
The analyst group appears divided on Watches of Switzerland’s prospects. The shares at present have a ‘reasonable purchase’ consensus score, primarily based on 6 ‘purchase’ rankings and three ‘maintain’ rankings from analysts over the previous three months. The common worth goal of 486.38p represents a possible development of almost 18% from the present share worth.
Nevertheless, it’s value noting that some analysts have not too long ago lowered their worth targets. Financial institution of America Securities, as an example, diminished their goal from 700p to 650p whereas sustaining a ‘maintain’ score.
One to look at
So, is time up for Watches of Switzerland shares? Whereas the corporate faces vital challenges, together with compressed margins and a difficult macroeconomic setting, it’s maybe too quickly to name time on this luxurious retailer.
Regardless of some combined rankings and valuations, the agency’s sturdy stability sheet and projected earnings development counsel there should still be life within the previous timepiece but. Nevertheless, potential traders ought to concentrate on the dangers, together with the corporate’s current underperformance and share worth volatility.
So whereas the Watches of Switzerland share worth should still have some ticks left in it, solely time will inform if it may regain its lustre as a standout funding within the UK market. I’ll be including it to my watchlist for now.
