On 18 January, Watches of Switzerland Group (LSE: WOSG) shares took a big kicking.
The luxury watch seller was hit by a 37% price fall on the day, after hitting the market with a shock profit warning.
Does that mean a buying opportunity for investors right now? Let’s look a bit closer.
Poor Christmas
The company saw weak trading over the holiday spell, and has now lowered its full-year expectations.
CEO Brian Duffy said: “The festive period was particularly volatile this year for the luxury sector, with consumers allocating spend to other categories such as fashion, beauty, hospitality and travel.“
Other stocks in the sector have suffered too, as Burberry shares also hit the skids. The fashion brand has reported a similar slowdown in global luxury retail.
Burberry shares have lost 45% in 12 months, and they’re down 30% in the past five years.
Back at Watches of Switzerland, the board has just cut its full-year revenue guidance to £1.53-£1.55bn, from a previous £1.65-£1.70bn.
Share price ride
The shares suffered last year as well, when Rolex bought out Bucherer and its chain of stores. Rolex told us it wasn’t moving into retail, but it was still enough to give Watches of Switzerland shareholders a scare.
Even after that, and this latest crunch, the share price is still up 20% in the past five years. But it’s way down from its peaks of just two years ago.
To me, the shares look like they might be good value today. And even better now, after this fall.
Prior to the latest bad news and price drop, forecasts had the stock on a price-to-earnings (P/E) ratio of 12. And with expected earnings growth in the next few years, they had that dropping to under nine by 2026.
Good value now?
Earnings forecasts will have to be reworked now. But will a new lower figure really justify the 37% crash we just saw? Or has the market overreacted, as it often does? I can’t help thinking it might be the latter.
It’s hard to judge the luxury retail market, though, and some of us might be surprised if it’s been hit by inflation — these well-heeled folk don’t feel it, do they?
Well, maybe the mega-rich might be immune to rising costs. But all sorts of people at many income levels like, and buy, nice watches.
And there has to be a segment of every retail market where buyers need to slow their spending when times are that bit harder, surely.
Retail is retail?
There’s a couple of reasons I won’t buy Watches of Switzerland shares now. But it’s mainly because I don’t really understand its niche market and how it works.
And there are way more cheap stocks out there, which I understand a lot better, than I can possibly buy.
But for those who know this market, and who would want hold for the long term, this has to be a buy worth considering at this price.
