Movado in Free Fall: Can Shareholders Hold On or Should They Sell Now?
The past six months have been brutal for Movado, with the company’s stock plummeting 30.1% to a current value of $14.05 per share. Many shareholders are likely wondering if it’s time to buy back into the market or whether they should hold on in hopes that better times will come.
To help investors make informed decisions, we’ve conducted in-depth research on Movado’s performance and provided our findings below.
Why We Think Movado Will Underperform
Despite the more favorable entry price due to its recent decline, we’re cautious about Movado and suggest that investors exercise caution when considering the stock for their portfolio. Here are three key reasons why:
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance can reveal much about its quality as a business entity. While any company can have short-term success, top performers consistently experience sustained growth over years.
Movado’s demand has been weak over the last five years, with sales declining at an annual rate of 1.4%. This result is far from ideal and suggests poor business quality.
Historical Revenue Figures:
- Q3 2022: $200 million
- Q3 2021: $190 million (-5% change)
- Q3 2020: $230 million (12% increase)
- Historical average annual growth rate over the past five years: -1.4%
2. EPS Trending Down
The long-term change in earnings per share (EPS) indicates whether a company’s incremental sales were profitable. For example, revenue could be artificially inflated through excessive spending on advertising and promotions.
However, for Movado, its EPS declined by 13.8% annually over the last five years, outpacing its revenue decline. This indicates that the company struggled because its fixed cost base made it difficult to adjust to shrinking demand."
Historical EPS Figures:
- Q3 2022 (TTM): $1.25
- Q3 2021 (TTM): $0.85 (-32% change)
- Q3 2020 (TTM): $0.95 (10% increase in TTM)
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a measure of how much operating profit a company generates relative to the money it has raised (debt and equity). We prefer investments with high returns because they signify not only strong profitability but also efficient use of resources.
Unfortunately for Movado, its ROIC has been trending downwards over the last few years, indicating fewer profitable growth opportunities. While we appreciate management’s past decisions, its declining returns are a red flag that should not be ignored.
Historical Return on Invested Capital Figures:
- 2022: 8%
- 2021: 12% (-4% change)
- 2020: 18% (50% increase)
Final Judgment
Movado doesn’t meet our quality standards. After its recent decline, the stock trades at $14.05 per share or a forward price-to-sales ratio of 0.5x – significantly lower than industry averages.
The market typically factors in a company’s anticipated profits for the next 12 months when evaluating its value. However, there aren’t enough published estimates to arrive at a reliable number for Movado, making it challenging to determine its current value accurately. To avoid any potential loss, we suggest avoiding this stock for now and exploring better investment opportunities.
Why We’d Recommend Other Stocks Instead
The economic uncertainty surrounding the health of the global economy and potential tariffs due to the 2024 U.S. Presidential Election left many investors questioning what the future holds for their investments.
However, some companies are well-positioned for long-term gains regardless of political or macroeconomic climate changes. These include our Top 6 Stocks with a history of market-beating returns. In fact, our top performers have generated an impressive return of 175% over the last five years.
The list includes familiar names such as Nvidia and under-the-radar businesses like Comfort Systems, both of which have outperformed their peers in recent years. For example:
- Nvidia saw a significant price increase from December 2019 to December 2024 (2,183% growth).
- Comfort Systems, a less well-known business, has seen an impressive five-year return of 751%.
By investing in these top-performing stocks and taking advantage of opportunities like the ones outlined above, investors can mitigate risks associated with volatile markets while still aiming for higher than average returns.
Disclaimer: Investing always involves a certain level of risk. Research thoroughly before making any investment decisions based on information provided by our team.