Movado’s stock price has taken a beating over the past six months, shedding 20.4% of its value and falling to $20.03 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Movado, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.Even though the stock has become cheaper, we're cautious about Movado. Here are three reasons why you should be careful with MOV and a stock we'd rather own.
Why Do We Think Movado Will Underperform?
With its watches displayed in 20 museums around the world, Movado (NYSE:MOV) is a watchmaking company with a portfolio of watch brands and accessories.
1. Revenue Spiraling Downwards
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Movado’s demand was weak over the last five years as its sales fell at a 1.5% annual rate. This fell short of our benchmarks and signals it’s a low quality business. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Movado, its EPS declined by more than its revenue over the last five years, dropping 14.9% annually. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Movado’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Movado doesn’t pass our quality test. After the recent drawdown, the stock trades at $20.03 per share (or 0.7× forward price-to-sales). The market typically values companies like Movado based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere. Let us point you toward Wingstop, a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Movado
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