One FTSE 250 stock that has seen its shares on a downward trajectory for some time now is Watches of Switzerland Group (LSE: WOSG). What’s happened and is there a buying opportunity here or not? Let’s take a closer look.
Why has the Watches share price fallen so much?
Watches of Switzerland is a luxury watch, jewellery, fashion, and aftercare services business with a presence in the UK and US. However, it makes most of its money from the UK.
As I write, Watches shares are trading for 491p. They’ve dropped a hefty 41% over a 12-month period. At this time last year they were trading for 788p. For context, the FTSE 250 index as a whole finds itself in pretty much the exact same position now as it was at this time last year.
One of the biggest reasons that Watches shares have fallen so much is the fact that in August, Rolex announced it had purchased Bucherer, which owns and operates around 100 stores globally. Rolex is the world’s biggest manufacturer by revenue in the world by some distance. It usually sells its watches through dealers such as Watches of Switzerland Group. However, there are fears it could be moving into retail and direct to consumer. Watches, could see its sales fall off a cliff if it is dropped by Rolex.
Watches did release a statement a few days after the news broke to allay fears and downplay Rolex’s move. However, it seems the market was already spooked.
The investment case
There are some considerations to take into account for me when it comes to the Watches investment case. Firstly, during times of economic downturn and volatility, like now, those who can afford such luxuries aren’t usually affected. This means they can go about their daily lives and carry on purchasing what they want. In turn, firms like Watches shouldn’t see too much of a detrimental impact on its performance levels.
Next, according to sources including Oxfam and Credit Suisse, the number of wealthy individuals and global wealth generally is only increasing. This is good news for luxury goods businesses, like Watches. This burgeoning wealth could help boost performance and investor returns for the FTSE 250 incumbent.
Finally, Watches shares look decent value for money on a forward looking price-to-earnings ratio of 13. However, this is based on analyst projections for the current full-year results and these don’t always come to fruition.
A FTSE 250 stock I’m watching for now
Despite operating in a market generally unaffected by global economic volatility, and a decent valuation after its shares dropped, Watches is not a stock I’m buying today.
The primary reason for this is Rolex’s recent move. It would make sense if Rolex did decide to move into retail as it could boost revenue and profits on an unprecedented scale.
I’m going to keep a close eye on Watches of Switzerland Group shares for now, especially future performance updates, as well as general market news linked to Rolex especially. There are better FTSE 250 stocks I’ll consider for my holdings right now.
