This FTSE 250 stock’s share price has taken a significant hit, but the potential for a rebound is too enticing for me to ignore.
The company, Watches of Switzerland (LSE:WOSG), has seen its stock price collapse 60% in just one year.
2023 was a tumultuous year for Watches of Switzerland. First, the easy-money era of the pandemic had ended, meaning less household demand for luxury goods.
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Next, Rolex announced it would enter the retail and e-commerce space. Previously, it had only sold its timepieces through trusted third parties like Watches of Switzerland.
But market analysts are predicting a stronger performance ahead. After an unsettling period, the company is looking to capitalise on its rich heritage and strong brand partnerships.
Where it came from
The company’s history dates back to 1775, and it has been serving the luxury watch market since 1924 under its current name.
The company holds Royal Warrants from Queen Victoria and King Charles III. It proudly offers over 20 prestigious brands, such as Rolex and Omega.
Watches of Switzerland has expanded beyond the UK, now operating in key markets like the US and Europe. With over 130 stores and a robust multi-channel retail model, it’s well-positioned for modern retail.
Its commitment to sustainability and a recent centenary celebration of their partnership with Rolex mark significant achievements.
Recent acquisitions like Mappin & Webb and Mayors Jewellers underscore an aggressive expansion strategy.
Where it’s going
CEO Brian Duffy’s strategic moves have placed the company on a promising path. Duffy emphasises the group’s distinctive business model, the strength of its brand partnerships, and international scale as key differentiators.
Despite the recent challenges in the luxury goods market, US consultancy firm Bain predicts up to 4% growth in 2024. As a result, Watches of Switzerland looks well-placed to capitalise on the long-term fundamentals of the luxury watch category.
Ticking along nicely
The luxury sector’s dynamics are shifting. With the pandemic boom nothing more than a fading echo, consumers are reallocating their spending. Unsurprisingly, Watches of Switzerland has felt the impact.
However, the group’s strong financials, including revenue of £1.5bn and adjusted earnings before interest and taxation of £165m for FY23, provide a cushion against the current market volatility.
Moreover, the company’s leadership in the UK and significant US presence are advantages not easily replicated.
The world’s investment community is watching. Analysts are maintaining a ‘moderate buy’ rating (based on five ‘buy’, two ‘hold’, and zero ‘sell’ ratings). Furthermore, their average price targets for the next 12 months are around 100% above the current share price.
As the market anticipates potential interest rate cuts, luxury spending may see a resurgence, benefiting companies like Watches of Switzerland.
Of course, the risk of the US economy suffering a hard landing remains a worrying spectre, given Watches of Switzerland makes 42% of its revenue in America. Meanwhile, the UK and European markets – where 58% of the company’s revenue is raised – already seem to be hitting speed bumps.
But for investors with a long-term view, the current dip in share price may present a unique opportunity.
When I next have funds to allocate, I plan to add Watches of Switzerland shares to my portfolio.
