Although Movado Group (MOV ) is the designer and maker of such well-known upscale, artsy watches as Movado and Concord, it's hardly an industry giant. Sales in fiscal 2002 were $300 million, and Movado's global market share is just 2.3%. But in the last 12 months, the stock has outscored other luxury-goods companies such as Gucci and Tiffany--and yet still trades at a steep discount to their shares.
Movado has bucked the overall market, rising from 14 a share on Sept. 24 to 21 on June 19. Selling at 11.2 times next year's projected earnings of $1.86 a share, for the fiscal year ending Jan. 31, 2004, it's trading at a "too-severe discount" to the luxury industry's average price-earnings ratio of 20.4, says Paula Kalandiak of Wells Fargo Securities, who rates Movado a buy. The analyst doesn't own the stock, and Wells Fargo hasn't had deals with Movado. Kalandiak says that with its strong brand in premium watches, Movado has huge potential to grow in the $13 billion industry. Selling directly to big department and specialty stores in 60 countries, it also competes in the nonluxury watch market with its Tommy Hilfiger, Coach, and ESQ brands.
Movado's boutique stores, which sell its own jewelry exclusively, are highly profitable and deliver rich margins, says Kalandiak. In fiscal 2002, Movado earned $1.43 on $299.7 million in sales. Kalandiak's 12-month stock price target is 28, or 15 times her fiscal 2004 forecast. Her 2003 estimate is $1.62 a share, on $320.7 million in sales.
Some pros say Movado would trade higher were it not for its dual stock. Its Class A shares, controlled by the family of Chief Executive Efraim Grinberg, has 10 votes a share. Grinberg concedes that Class A "is there as an anti-takeover device." Many companies are interested, he says, "but we aren't for sale--although we're always looking for opportunities for our shareholders." He wouldn't say whether Swatch Group, a big watchmaker with 18 brands and a 20% market share, is among those interested.
By Gene G. Marcial