Watches of Switzerland shares just fell 37%. Should investors buy the dip?

Watches of Switzerland shares have just crashed for the second time in less than a year, this time triggered by a painful profit warning.

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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.

Should you invest £1,000 in Watches Of Switzerland Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Watches Of Switzerland Group Plc made the list?

See the 6 stocks

Created with Highcharts 11.4.3Watches Of Switzerland Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

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.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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