Watches of Switzerland share price crashes to key support: buy the dip?

The Watches of Switzerland share price has plummeted to a crucial support level as the industry experiences a major slowdown. WOSG was trading at 325p on Friday, August 15, its lowest level since April this year, and 46% below the highest point in December.

Watch industry is slowing

Watches of Switzerland is one of the biggest retailers in the category. It owns 208 stores across the UK, US, and Europe. Many of these brands are in partnerships with top Swiss brands like Omega and TAG Heuer. 

The WOSG stock price has plummeted as the industry goes through major headwinds after booming during the pandemic. Recent data from Switzerland shows that the number of watches shipped from the country has decelerated in the past few years. 

The Swiss watch industry has been under intense pressure, such that the government has been forced to intervene and save smaller companies. Also, most publicly traded groups like Richemont and Swatch Group have plunged by double digits. 

Still, there are signs that Watches of Switzerland’s business is doing well as shown by its recent results. The data showed that its sales rose by 8% in the last financial year to £1.652 billion.

This growth happened partly because of its store openings during the year, which helped it with reach. It opened a new Rolex store in London, a new Patek Philippe in Connecticut, and introduced the Rolex brand to its key locations in the US.

The ongoing investments in the US helped to boost its sales there by 16% to £786 million. The UK and Europe segment’s revenue rose by 2% to £866 million. This means that the US division will likely pass the UK and Europe.

The risk, however, is that Donald Trump has imposed a 39% tariff on goods from Switzerland that will impact the industry. Watch companies face the daunting challenge of hiking prices as that will affect their sales. 

Its results also showed that its EBIT rose by 12% to £150 million, while its operating income fell to £114 million. It also continued with its £25 million share buyback, a move that is expected to boost its earnings per share. 

Is WOSG a good retail stock?

Watches of Switzerland’s business is doing well in a highly difficult environment. Historically, such periods have been good buying opportunities because of the low valuation. 

In its case, the company has a PE multiple of 14, which is lower than that of the broader S&P 500 Index. 

However, there are chances that the stock has more downside to go. It will likely rebound when the macros in the watch industry starts to improve. 

A potential catalyst for the stock would be a reduction of the 39% tariff by Trump. In the last statement, the management said:

“The 10% tariff on imported goods from Switzerland has led some of our brand partners to put through mid-single digit price increases in the US, alongside reducing their authorised distribution network’s margin percentage.”

Watches of Switzerland share price analysis

The daily chart shows that the WOSG stock price has been in a strong bearish trend in the past few years. Most recently, it plunged to a low of 323p, down from a peak of 600p in December last year. 

The stock has formed a head-and-shoulders pattern, and is now sitting at the neckline. This pattern often leads to more downside over time. 

Therefore, the stock will likely continue falling if it breaks below the support at 323p. A move below that level will point to more downside, with the next key level to watch being the psychological point at 300p. 

On the other hand, a move above the resistance level at 370, which is the 50-day moving average, will invalidate the bearish outlook and point to more gains. 

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