Charged with picking one of the best FTSE 250 growth stocks to buy now, I wonder how many might select Watches of Switzerland (LSE: WOSG). The shares have been ticking up ever since the company came to market back in 2019. They’re up again today on news that the business would be raising its full-year guidance. So should I buy?
Revenue jumps
It’s not hard to see why WOSG’s management is so bullish on the company’s outlook. Revenue was 44.6% higher in the six months to Halloween than achieved in the same period in 2020.
Sales in the UK were particularly strong, hitting £418.6m. That’s a stonking jump of 42.3%. As a sign of just how successful some of the company’s initiatives have been, roughly 40% of sales came from the company’s ‘By Personal Appointment’ business.
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In the US, revenue hit £167.6m — over 50% up on H1 last year. That’s also 66.7% above that achieved two years ago. Indicative just how quickly the company is growing, Q2 revenue was almost 80% higher than over the same three months in FY2020.
In short, the company is doing very, very well.
What now?
Following this barnstorming performance, WOSG now believes it will generate between £1.15bn and £1.2bn in revenue for the full year. That’s a healthy increase on the £1.05bn-£1.1bn previously suggested.
This bullish call is despite the company not expecting tourism and airport business to bounce back to normal anytime soon. Then again, this might not be needed. Online sales at WOSG held up well over the period (+28.7%) even though its physical stores were fully open.
As investors might expect, the FTSE 250 member is also planning to continue its invasion of the US. It’s recently agreed to purchase five stores in four new states. This move should generate around $100m in revenue once up and running and bring the total estate to 36 stores in 12 states.
Priced to perfection?
Somewhat understandably, WOSG shares were up 9% in early trading. This means the company’s valuation has climbed 186% in just 12 months and over 300% since listing in mid-2019. Assuming it has a good run-up to Christmas, I wouldn’t bet against this momentum continuing.
This is not to say WOSG’s fortunes will go on indefinitely. While expensive watches will still sell in good times and bad, the possibility of demand falling in the event of an economic downturn can’t be ignored. After all, the retailer has arguably benefitted from an exceptional period in which (some) people were able to save a lot of cash to spend on discretionary items once restrictions were lifted.
Aside from this, I reckon becoming a market darling also increases capital risk. When expectations are sky-high, the possibility of being disappointed also increases. This could mean the shares tumble on the first sign of trouble. For me, this would be time to pile in.
Of course, the danger of waiting for a major pull-back in a share price is that it never comes. This is why star investors like Terry Smith never attempt to time markets.
Quality stock
WOSG gives the impression of being a high-quality, well-run company with solid growth potential. At 33 times earnings, however, its shares is anything but cheap. For this reason alone, I’m not sure it’s the best FTSE 250 growth stock for me to buy today. Even so, it’s hard not to be impressed by recent progress.
