The watch industry could be one of the most stable growth, long-lasting sectors in the entire global economy. Movado Group Inc. (MOV, Financial) is one of the most important companies in this space. Currently, its stock looks undervalued after experiencing a relatively flat 2022. More importantly, it continues to pay a 4.2% dividend while trading at just 8 times earnings. With Movado expected to report quarterly numbers this week, the stock should be on your radar if nothing else.
About Movado Group
Movado is widely acclaimed for its contemporary design and the iconic Museum dial. The brand has received over 200 awards and has more than 100 patents for watch designs and time technology.
Founded in 1881 in La Chaux-de-Fonds, Switzerland by Achille Ditesheim, the company initially focused on designing and manufacturing pocket watches, but in 1905, it began producing wristwatches, which became increasingly popular.
Over the years, Movado has collaborated with a number of famous designers, including Nathan George Horwitt, who created the iconic Museum watch in 1947. The Museum watch features a simple black dial with a single dot at the 12 o'clock position, which has become a signature element of the company's design aesthetic.
Today Movado also owns the Concord and EBEL brands, along with licensing deals for Coach, Hugo Boss, Lacoste, MVMT, Olivia Burton, Tommy Hilfiger and Scuderia Ferrari watch brands.

Movado, the flagship brand in the portfolio, is still a recognized luxury brand in the $600 billion market. While it does not have the cache of other mass watch producers like Rolex or Omega, it does earn a good deal of money.
Financial performance
Movado Group has grown steadily throughout the last decade, producing $103 million in net income over the last 12 months on $763 million in total revenue. Drilling down into the financials, things look even better. Movado has a tight control on costs and has enough brand power to increase prices of its watches over time. This has helped the company keep gross margins comfortably above 50% while producing a net profit of nearly $100,000 per employee.
The company's balance sheet is strong as well with current assets of $563 million, $186 million of that in cash, far outpacing the company’s $292 million in total liabilities. Profitability is also extremely high with a return on equity of 22% and return on assets above 13%, while the debt equals less than a full year of net profit.
The company faced challenges in various areas last quarter. In its watch and accessory brands operations, international sales decreased slightly from $123.6 million to $122.8 million. The biggest setback was in the U.S. market, where revenue dropped from $70.8 million to $63.4 million, mainly due to a drop in owned brands sales from $69.4 million to $61.6 million, largely caused by negative impacts from foreign exchange rates, decreased demand from wholesale customers and lower online retail sales.
Despite a challenging third quarter, the company's performance over the first nine months of 2022 was positive. Revenue increased to $557.6 million, surpassing the $526.4 million reported during the same period the previous year. Net income also grew from $60.2 million to $71.8 million.
Movado reports its fourth-quarter and full-year 2023 results this week, which should give investors a better sense of where the company is heading. It has increased its inventory, which could be a good sign of things to come, or not so much if it remains unsold.
Future growth and valuation
With the potential of further U.S. market slowdowns, one of the key areas of growth is the Chinese market, which has become the largest market for luxury goods in the world. Movado has already established a presence in China through partnerships with leading e-commerce platforms, such as Tmall and JD.com. The company also plans to expand its retail footprint in China by opening more stores in key cities.
Watches are cool again. Grey market prices are out of control and brands like Movado are able to gently raise prices to keep up with inflation. The biggest risk is that Movado is not considered a top tier brand in the industry, which could lead luxury consumers to avoid buying Movado owned and licensed watches. However, with multiple brands under the umbrella and a network of retailers, it should withstand those pressures.
Movado is not going to accelerate growth like a technology company; however, even with the cyclical nature of the watch industry, the business remains relatively unchanged. In fact, it is better that way since people tend to pay more for manual or automatic watches from brands that are over 100 years old. Movado Group should continue to withstand the test of time, raising prices and producing essentially the same product.
As for the current price, it is not ideal, but is far from overvalued. Based on current financial performance, trading with a forward price-earnings multiple seems cheap versus the industry median of 13. This holds especially true considering the dividend yield is nearly twice the rate of the sector.
