Watches of Switzerland Shares: Down 42% This Year – Here’s Why

Watches of Switzerland Group (LON: WOSG) has seen its share price plummet by 42% in 2024.

This significant decline is a stark contrast to the buoyant performance of the broader market, which has remained relatively stable. Several factors have contributed to the WOSG downturn, raising concerns about the company's future prospects.

The decline in profitability is a red flag that wasn't ignored. The company's share price has shown high volatility, falling a massive 37% in a single day back in January after releasing a profit warning and stating that challenging conditions were expected to remain for the balance of its fiscal year.

Profitability has taken a major hit, with margins dropping in the most recent WOSG report. The company revealed that its statutory profit before tax declined -40% in FY24.

Furthermore, some investors have cited discounted cash flow (DCF) analysis as another factor impacting the stock, stating it is already overvalued. This is admittedly just one metric, but with investors already down significantly for the year, it's a cause for concern.  

Several macro factors have also contributed to Watches of Switzerland's share price decline. Firstly, the global economic climate has been volatile, with concerns about inflation and potential recessions.

As a result, consumers have been more cautious about spending on luxury items like high-end watches during such times.

Secondly, the luxury watch market is competitive, with various brands and retailers vying for market share. Increased competition can put pressure on pricing and profitability.

In a note to clients this week, analysts at Watches of Switzerland Exane BNP Paribas downgraded Watches of Switzerland to Neutral from Outperform with a price target of 460p a share, down from 550p.

Despite the headwinds already impacting the company, Exane BNP Paribas analysts said in a note to clients that they see more near-term challenges following the Roberto Coin acquisition.

However, analysts remain mostly bullish on the stock, with six currently assigning it a Buy rating and four a Hold rating. The average price target of 497.4p represents a potential 26% upside from current levels.

Given the significant decline in Watches of Switzerland's share price and the challenges facing the company, investors should proceed with caution.