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Shares of Movado Group (NYSE: MOV) hit a 52-week high this week. Let's look at how the company got here and see whether clear skies remain in the forecast.
How it got here
Movado shareholders have enjoyed an amazing run-up since the stock's 2009 lows, and they have a resurgence in Swiss watch sales to thank for most of the earnings growth. According to the Federation of the Swiss Watch Industry, total wristwatch sales jumped from 21.7 million units in 2009 to 29.8 million in 2011. Through the first two months of 2012 for which we have data, wristwatch units have risen by another 5.3%, signaling what could be another record year for sales.
This is all great news for Movado, which has cornered the intermediate watch niche. Its watches typically don't cost more than $2,000, nor are they often under $300. Consumers may still by gun-shy about making huge purchases, but Movado's products fit perfectly into the aspirational luxury category customers seem more than willing to splurge on. In light of the company's 23% rise in sales for fiscal 2011, it upped its quarterly dividend by 67% and announced a special $0.50 cash dividend.
How it stacks up
Let's see how Movado stacks up next to its peers.
What you're seeing here is the sudden popularity of name-brand merchandise in today's economy. Fossil (Nasdaq: FOSL), which has a collaborative deal to provide Michael Kors (Nasdaq: KORS) with watches that it can then rebrand as its own, is up more than tenfold since its 2009 recession lows.
|
Company |
Price/ Book |
Price/ Cash Flow |
Forward P/E |
5-Year CAGR |
|---|---|---|---|---|
| Movado | 1.8 | 8 | 16.6 | (2.6%) |
| Fossil | 7.4 | 33.9 | 19.9 | 16.2% |
| Michael Kors | 22.4 | 70 | 45.3 | N/A |
| Coach (NYSE: COH) | 11.7 | 17.6 | 18.5 | 14.5% |
Sources: Morningstar, Yahoo! Finance, author's calculations, N/A = not available, CAGR = compound annual growth rate.
Make no mistake about it -- not only will you pay top dollar for brand-name merchandise, but you'll pay up to own the stocks as well. Michael Kors' North American same-store sales grew at 38% in the recent quarter, but does that really justify trading at 70 times cash flow? I'm not quite sure. Movado is clearly cheaper than its watchmaking peers from a valuation perspective, but where companies such as Coach and Fossil stand out are in their diverse product lines and recognizable brand appeal. Don't get me wrong -- as a watch enthusiast, I can spot a Movado a mile away, but Coach has an accessories division that's unsurpassed among this group.
What's next
Now for the real question: What's next for Movado Group? That question really depends on whether Movado can continue to offer fresh and innovative products to its consumers and expand its product line beyond just watches.
Our very own CAPS community gives the company a two-star rating (out of five), with 155 of 191 members expecting it to outperform. I am one of those 155 who have made a CAPScall of outperform on Movado and am currently up a whopping 49 points on that call. I see no reason to end the call as long as Swiss watch sales remain strong and brand-name merchandise continues to remain popular. Movado does have the added risk of not having as diversified a product line as Coach or Fossil, but with a growing dividend, a solid balance sheet, and a tempting valuation even after its run, I'm going to maintain my outperform rating going forward.
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