Investing when funds are tight can be challenging, but when an enticing growth stock catches my attention, it’s hard to resist.
In the world of luxury watches, one company stands out as a potential gem: Watches of Switzerland (LSE:WOSG).
The company has faced concerns recently over softening sales and a subsequent drop in share price. But the company’s strong fundamentals and promising outlook make it an appealing investment choice to me.
Timing is everything
Before diving into the investment, it’s important to acknowledge one potential risk associated with Watches of Switzerland.
The recent softening sales figures have raised concerns. Investors are worried about the company’s ability to sustain the growth witnessed during the pandemic.
However, it is crucial to understand that this is a reset of growth expectations rather than an indication of major underlying problems.
Ticking all the right boxes
Watches of Switzerland has proven itself as a company with solid financials. With a return on equity of 31%, the company demonstrates its ability to generate profits efficiently.
Additionally, its debt-to-assets ratio of 0.44 indicates a healthy balance sheet and a conservative approach to financing.
Another key figure for me is the price-to-sales (P/S) ratio of one. This suggests that the company is undervalued in relation to its revenue generation.
This presents an opportunity for me to acquire shares at an attractive price — hypothetically stretching my last £50 to the maximum.
In comparison, the price-to-earnings (P/E) ratio stands at 13 today, significantly lower than the peak of 34 during the pandemic growth stock mania in 2020.
Recent news updates give me further confidence in Watches of Switzerland’s growth potential. The company reported strong performance in fiscal year 2023. Group revenue reached £1,543m, representing a 25% increase at reported rates and a 19% increase at constant currency.
Additionally, the company expects its adjusted earnings to be between £163m and £167m, aligning with its long-range plan.
Moreover, analysts from Jefferies note that Watches of Switzerland is likely to meet its FY2023 targets, supported by ongoing sales growth in the fourth quarter. Despite a slight slowdown in the US, the company’s wait lists for luxury watches remain healthy, and it continues to attract new clients. Jefferies holds a ‘buy’ rating on the stock and has set a price target of 1,300p – more than double where it sits currently at 602p.
A timely investment opportunity
Despite the recent dip in share price and concerns over sales softening, Watches of Switzerland presents a compelling investment opportunity for my portfolio.
The company’s strong financials, including a solid return on equity and a conservative debt-to-assets ratio, coupled with its undervalued stock price and positive news updates, make it an attractive growth stock.
I already have 10% of my portfolio invested in Watches of Switzerland shares. Fortunately, I’m not down to my last investable £50. Regardless, I will be adding more shares to my position.
