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Many investors may say that time is running out. Swiss watches (LSE:WOSG) is an attractive investment. The luxury watch retailer’s share price has fallen by almost 38% over the past year, significantly underperforming its sector peers and the wider UK market. But does this represent a golden opportunity for savvy investors? Let’s take a closer look.
Out of time?
The company operates as a luxury watch and jewellery retailer in the UK, Europe and the US. While the business boasts an impressive heritage dating back to 1775, its recent performance has been less than stellar.
The company's profit margins have been significantly impacted, falling from 7.9% last year to just 3.8% in the most recent report. This compression in profitability is a warning sign that should not be ignored. Furthermore, the company's share price has shown high volatility, falling a staggering 37% in a single day in January after it issued a profit warning.
What is most worrying to me is that a discounted cash flow (DCF) analysis suggests the company is already overvalued by a whopping 287%. Admittedly, this is just one metric, but given that investors have already significantly reduced their positions during the year, I would be concerned that further difficulties lie ahead.
Signs of optimism
However, it's not all bad news for Watches of Switzerland. The company's price-to-earnings (P/E) ratio of 16.3 times is slightly below the UK market average of 16.7 times, suggesting it may be trading at a reasonable value compared to its peers. Furthermore, analysts are forecasting healthy earnings growth of 17.35% per year.
The company also appears to be in good financial health, with more cash than debt. This strong foundation could help the firm weather short-term storms and position itself for future growth.
The analyst community appears divided on the outlook for Watches of Switzerland. The stock currently has a consensus rating of “moderate buy”, based on 6 “buy” ratings and 3 “hold” ratings from analysts over the past three months. The average target price of 486.38p represents potential growth of almost 18% from the current share price.
However, it is worth noting that some analysts have recently lowered their target prices. Bank of America stocks, for example, cut their target from 700p to 650p, while maintaining a “hold” rating.
One to watch
So is it time for Watches of Switzerland stock to go? While the company faces significant challenges, including tight margins and a tough macroeconomic environment, it may be too soon to say goodbye to this luxury retailer.
Despite some mixed valuations and ratings, the company's strong balance sheet and projected earnings growth suggest there may still be life in the old clock. However, potential investors should be aware of the risks, including the company's recent underperformance and share price volatility.
So while Watches of Switzerland’s share price may still have some room for improvement, only time will tell if it can regain its shine as a standout investment in the UK market. I’ll add it to my watch list for now.
