Fellow Fool Stephen Simpson has been watching Movado (NYSE:MOV) tick along nicely for the past few quarters, but he hasn't seen a compelling valuation. I've tended to agree with him in the past, but last quarter's numbers make a good case to revisit the company.

It seems like the company is hitting on all cylinders, as the 2004 Ebel acquisition is starting to pay off in some fashion. For one thing, the company blew away analyst estimates with $0.11 a share versus expectations of just $0.02. So, what has gotten this company's gears and stock price in motion?

Well, several things. Taxes were a big help this quarter, as the company was able to use some net operating losses from the Ebel deal to offset taxes, which added a penny a share to first-quarter earnings and allowed the company to raise estimates by $0.14 for fiscal 2007. Not only that, but operating margins expanded from 2.4% to 3.5% because of operating discipline, leading to a 60% increase in operating profit, which is some nice operating leverage when you consider that sales only rose by 11%. With top-tier licenses like Juicy Couture being launched in fall 2006 and Lacoste in 2007, future prospects look strong.

But Movado, which holds licensing deals with Tommy Hilfiger (NYSE:TOM) and Coach (NYSE:COH), just doesn't look that attractive from a valuation standpoint. Since the shares jumped more than 23% Thursday, the upside from the quarter and 2007 guidance looks to be more than effectively priced in. Keep in mind that inventories weren't so hot (up nearly $15 million over the last quarter to $213 million) and continue to rise faster than sales. Since 2004, revenue and income have grown 42% and 16%, respectively, while inventories have grown 63%. Investors should keep an eye on this, but given the watch industry's poor cash conversion cycle (well, using our publicly traded sample of one), this isn't particularly surprising.

To me, Tiffany (NYSE:TIF) looks a bit more attractive in the luxury space because of a highly durable competitive advantage and a rising dividend. While Movado's tax benefits provided a nice surprise this time around, investors certainly can't count on them for long-term outperformance. That's management's job.

For related Foolishness:

Check out our suite of investing newsletters with a 30-day free trial to the newsletter service of your choice.

Fool contributor Stephen Ellis welcomes your feedback. He does not own shares of any companies mentioned.