Is time up for Watches of Switzerland shares?

Many buyers could say the clock could also be ticking on Watches of Switzerland (LSE:WOSG) shares as a horny funding. This luxurious watch retailer has seen its share worth plummet practically 38% over the previous 12 months, considerably underperforming each its trade friends and the broader UK market. However does this current a golden alternative for savvy buyers? Let’s take a better look.

Out of time?

The corporate operates as a retailer of luxurious watches and jewelry within the UK, Europe, and the US. Whereas the enterprise boasts a powerful heritage courting again to 1775, its latest efficiency has been lower than stellar.

The agency’s revenue margins have taken a big hit, dropping from 7.9% final 12 months to simply 3.8% in the newest report. This compression in profitability is a pink flag that shouldn’t be ignored. Moreover, the corporate’s share worth has proven excessive volatility, falling an enormous 37% in a single day again in January after releasing a revenue warning.

Most worrying for me, a discounted money stream (DCF) evaluation suggests the corporate is already overvalued by an unimaginable 287%. That is admittedly only one metric, however with buyers already down considerably for the 12 months, I’d be nervous about additional difficulties forward.

Indicators of optimism

Nevertheless, it’s not all dangerous information for Watches of Switzerland. The corporate’s price-to-earnings (P/E) ratio of 16.3 instances is barely beneath the UK market common of 16.7 instances, suggesting it could be buying and selling at a good worth in comparison with its friends. Moreover, analysts are forecasting wholesome earnings development of 17.35% per 12 months.

The corporate additionally seems to be in good monetary well being, with extra cash than debt. This stable basis might assist the agency climate short-term storms and place itself for future development.

The analyst neighborhood appears divided on Watches of Switzerland’s prospects. The shares at the moment have a ‘reasonable purchase’ consensus score, based mostly on 6 ‘purchase’ rankings and three ‘maintain’ rankings from analysts over the previous three months. The typical worth goal of 486.38p represents a possible development of practically 18% from the present share worth.

Nevertheless, it’s value noting that some analysts have not too long ago lowered their worth targets. Financial institution of America Securities, as an example, diminished their goal from 700p to 650p whereas sustaining a ‘maintain’ score.

One to look at

So, is time up for Watches of Switzerland shares? Whereas the corporate faces important challenges, together with compressed margins and a difficult macroeconomic setting, it’s maybe too quickly to name time on this luxurious retailer.

Regardless of some blended rankings and valuations, the agency’s sturdy steadiness sheet and projected earnings development recommend there should still be life within the previous timepiece but. Nevertheless, potential buyers ought to pay attention to the dangers, together with the corporate’s latest underperformance and share worth volatility.

So whereas the Watches of Switzerland share worth should still have some ticks left in it, solely time will inform if it may well regain its lustre as a standout funding within the UK market. I’ll be including it to my watchlist for now.