BUSINESS
Movado Group, Inc. designs, sources, markets, and distributes watches worldwide. The company operates in two segments, Watch and Accessory Brands, and Company Stores. It offers its watches under the Movado, Concord, Ebel, Olivia Burton, and MVMT brands, as well as licensed brands, such as Coach, Tommy Hilfiger, HUGO BOSS, Lacoste, Calvin Klein, and Scuderia Ferrari. The company also provides after-sales and shipping services. Its customers include jewelry store chains, department stores, independent regional jewelers, network of independent distributors, online marketplaces, licensors’ retail stores, and third-party e-commerce retailers. The company also sells directly to consumers through its e-commerce platforms. As of January 31, 2022, it operated 51 retail outlet locations.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to exceed the cost of capital, MOV is expected to continue to be a Value Builder.
Movado Group has a current Value Trend Rating of C (Low Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing highly consistent signals. Movado Group has a neutral Appreciation Score of 47 and a neutral Power Rating of 42, with the Low Neutral Value Trend Rating the result.
Movado Group’s stock is selling well below targeted value. The current stock price of $25.76 compares to targeted value 12 months forward of $39.
This neutral appreciation potential results in an appreciation score of 47 (53% of the universe has greater appreciation potential.)
Movado Group has a Power Rating of 42. (This neutral Power Rating indicates that MOV’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Contributing to this neutral Power Rating: the Watches, Clocks and Parts comparison group is in an extremely unfavorable position currently. An offsetting factor is recent price action has been neutral.
INVESTMENT PROFILE
MOV’s financial strength is average. Financial strength rating is 59.
Relative to the S&P 500 Composite, Movado Group Inc has moderate Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that MOV is normal risk. Low financial leverage is a positive for MOV. Relative weaknesses include: low forecasted profitability, low historical profitability, and high earnings variability. MOV’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. MOV has unusually low market capitalization.
CURRENT SIGNALS
Movado Group’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
Movado Group’s current technical position is moderately positive. The stock price is in a 8.6 month up move. The stock has appreciated 22.8% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Modest negative changes in Movado Group Inc (NYSE: MOV) fundamentals have recently occurred. Negative developments: the stock’s power rating fell below 50, and significant quarterly sales deceleration occurred. Positive development: significant quarterly earnings acceleration occurred.
The stock is currently rated C.
Movado Group Inc (NYSE: MOV) stock closed at $25.76 on 4/11/24 after a modest decline of -1.2%. However, below average trading volume at 74% of normal accompanied the decline. The stock has declined -6.9% during the last week and has performed in line with the market over the last nine months.
CASH FLOW
In 2024, Movado Group generated an increase in cash of +$10.10 million (+4%). Sources of cash were very slightly larger than uses. Cash generated from 2024 EBITDA totaled +$64.35 million. Non-operating sources contributed +$5.16 million (+8% of EBITDA). Cash taxes consumed -$12.66 million (-20% of EBITDA). Re-investment in the business amounted to -$12.24 million (-19% of EBITDA). On a net basis, debt investors supplied +$3.00 million (+5% of EBITDA) while equity investors pulled out -$37.52 million (-58% of EBITDA).
Movado Group’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Movado Group Peer Group. In most years, Movado Group was in the second quartile and top quartile. Currently, Movado Group is upper quartile at +8% of EBITDA (+$5.16 million).
Movado Group’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Movado Group Peer Group. In most years, Movado Group was in the third quartile and top quartile. Currently, Movado Group is below median at -20% of EBITDA (-$12.66 million).
Movado Group’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Movado Group Peer Group. In most years, Movado Group was in the top quartile and second quartile. Currently, Movado Group is slightly below median at -19% of EBITDA (-$12.24 million).
Movado Group’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Movado Group Peer Group. In most years, Movado Group was in the top quartile and third quartile. Currently, Movado Group is at the upper quartile at +5% of EBITDA (+$3.00 million).
Movado Group’s Equity Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Movado Group Peer Group. (Since 2021 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, Movado Group was in the lower quartile and top quartile. Currently, Movado Group is lower quartile at -58% of EBITDA (-$37.52 million).
Movado Group’s Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Movado Group Peer Group. In most years, Movado Group was in the top quartile and second quartile. Currently, Movado Group is below median at +16% of EBITDA (+$10.10 million).
Movado Group’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Movado Group Peer Group as well. In most years, Movado Group was in the top quartile. Currently, Movado Group is upper quartile at +39%.
PROFITABILITY
Movado Group’s return on equity has improved very significantly since 2015. The current level of 9.0% is 1.22X the low for the period and is -15.8% from the high.
The key to the story for MOV is a very strong negative trend in pretax operating return significantly offset by a very strong positive trend in non-operating factors.
The productivity of Movado Group’s assets declined over the full period 2015-2024: asset turnover has experienced a downtrend even as it experienced a sharp recovery after the 2021 low.
Reinforcing this trend, pretax margin experienced a strong overall downtrend that accelerated very sharply from the 2023 level.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Movado Group’s return on equity is slightly below median (9.0%) for the four quarters ended January, 2024.
Operating performance (pretax return on assets) is at median (7.8%) reflecting asset turnover that is slightly above median (0.87X) and at median pretax margin (9.0%).
Tax “keep” rate (income tax management) is at the lower quartile (77.6%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is lower quartile (1.49X).
GROWTH RATES
Overall, Movado Group’s growth rate has slowed considerably in recent years.
Movado Group’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been 2.7% per year.
Total asset growth has been 3.8% per year. (More recently it has been -0.2%.)
Annual E.P.S. growth has been 4.4% per year.
Equity growth has been 1.5% per year. (More recently it has been 5.5%.)
No consensus growth rate forecast is available for Movado Group.
Relative to the Movado Group Peer Group, Movado Group’s historical growth measures are erratic. Revenue growth (2.7%) has been slightly above median. E.P.S. growth (4.4%) has been slightly above median. Equity growth (1.5%) has been below median. Total asset growth (3.8%) has been below median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Movado Group’s stock price performance has been variable and significantly below market. Between June, 2013 and April, 2024, Movado Group’s stock price fell -24%; relative to the market, this was a -76% loss. Significant price moves during the period: 1) July, 2020 – November, 2021: +365%; 2) October, 2019 – July, 2020: -63%; 3) July, 2018 – August, 2019: -57%; and 4) May, 2017 – July, 2018: +136%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -9.4% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -9.4% is below median relative to Movado Group Inc Peer Group.
Current 5-year total return performance of -0.1% is lower quartile relative to the S&P 500 Composite.
Through February, 2024, with lower quartile current 5-year total return of -0.1% relative to S&P 500 Composite, Movado Group’s total return performance is slightly above median relative to Movado Group Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, MOV’s overall valuation is exceptionally low. All five factors are lower quartile. The highest factor is the ratio of enterprise value/earnings before interest and taxes, followed by the ratio of enterprise value/assets, then by the price/earnings ratio, then by the price/equity ratio. The lowest factor is the ratio of enterprise value/revenue.
Relative to Movado Group Peer Group, MOV’s overall valuation is exceptionally low. All five factors are lower quartile. The highest factor is the ratio of enterprise value/assets, followed by the ratio of enterprise value/earnings before interest and taxes, then by the ratio of enterprise value/revenue, then by the price/earnings ratio. The lowest factor is the price/equity ratio.
Movado Group has a major value gap compared to the median. For MOV to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.74X to 1.17X. If MOV’s ratio of enterprise value/revenue were to rise to 1.17X, its stock price would be higher by $19 to $44.
For MOV to achieve upper quartile valuation relative to the Movado Group Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.74X to 1.61X. If MOV’s ratio of enterprise value/revenue were to rise to 1.61X, its stock price would increase by $37 from the current level of $26.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to exceed the cost of capital, MOV is expected to continue to be a Value Builder.
Movado Group’s current Price Target of $35 represents a +36% change from the current price of $25.76.
This neutral appreciation potential results in an appreciation score of 47 (53% of the universe has greater appreciation potential.)
Reinforcing this neutral Appreciation Score of 47, the neutral Power Rating of 42 contributes to an Value Trend Rating of C.
Movado Group’s current Price Target is $35 (-37% from the 2024 Target of $55 but +36% from the 04/11/24 price of $25.76). This dramatic fall in the Target is the result of a -7% decrease in the equity base and a -32% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a very large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very large positive impact.
PTR’s return on equity forecast is 9.6% — below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2016 and 2024. The current forecast is steady at the 2020 peak of 11%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2016 and 2024. The current forecast is well below the 2020 peak of 8%.
PTR’s cost of equity forecast is 6.4% — slightly below recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2016 and 2024. The current forecast is below the 2020 peak of 8.7%.
At Movado Group’s current price of $25.76, investors are placing a negative value of $-7 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 8.0% per year, and a return on equity of 16.0% versus a cost of equity of 10.5%.
PTR’s 2026 Price Target of $35 is based on these forecasts and reflects an estimated value of existing assets of $34 and a value of future investments of $1.
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