Watches of Switzerland share price: irrational sell-off, buy the dip

Watches of Switzerland (LON: WOSG) share price made a catastrophic plunge on Friday as investors reacted to the latest M&A in the industry. The shares dropped by more than 20% and reached the lowest level since 2020. They have fallen by over 65% from the highest point on record.

Seems like an overreaction

Watches of Switzerland stock price dropped sharply after Rolex, the biggest premium watch company in the world, acquired Bucherer. Bucherer is a retailer that sells watches in the UK and other cities, mostly in Europe.

As such, its stock plunged as investors predicted that Rolex will start selling its watches directly in Bucherer and cut Watches of Switzerland. I believe that the sell-off was an overreaction.

First, I believe that Rolex will do nothing to change its relationship with companies like WOSG. It is in its interest to maintain this relationship because of the company’s retail footprint in the UK and other countries. Bucherer has less than 70 stores worldwide.

Second, the motivation of the deal was not to weaken Watches of Switzerland and other retailers. The real reason is that the owner of Bucherer is 86 years old and has no years. As such, his demise could have an impact on the company.

Finally, Watches of Switzerland still sells many other luxury watches in its stores. It is a key seller of watch brands like Omega, Cartier, and Piguet. Therefore, for these reasons, I believe that the WOSG business will bounce back after the recent dip.

The most recent results showed that the company’s business did well in a difficult environment. Watches of Switzerland revenue came in at £382 million in Q1’FY23. The decline was mostly because of the unwinding of the benefit of product intake in the UK. 

Watches of Switzerland is being supported by the strength of its US business. Revenue growth in Q1 was 10% to £163 million as UK and Europe dropped by 8%.

Watches of Switzerland share price forecast

WOSG chart by TradingView

In my last article on WOSG, I noted that the company was one of my best UK retail stocks. At the time, I predicted that the shares would rise to about 900p. This view was almost accurate as the stock topped to 786p. These gains ended after the Friday’s sell-off.

The stock moved below the important support level at 580p, the lowest level on July 7th. Fortunately, the stock has formed a doji pattern, which is a sign of reversal. Therefore, the shares will likely bounce back and retest the important resistance at 650p.