Swatch: Watch king in search of a beat

The world’s largest manufacturer of timepieces is causing a stir with new products and strong growth. But so far there has been no applause from stock market investors. The stock has now reached a decisive point. At Swiss DOTS, investors will find a wide selection of almost 700 leverage products allowing effective long and short trades..

Turning point for Swatch? After an operationally strong first six months, the stock started to see a dynamic comeback. In the process, the SMIM stock not only succeeded in putting an end to the downtrend that had lasted since March, but Swatch also regained the 200-day line. But this enthusiasm did not last long. The price dipped again and the chart successes were quickly erased.

Double-digit growth

So the stock market world does not quite seem to trust the glamour emanating from the half-year report. Unlike its competitor Richemont, the world’s largest manufacturer of chronographs was able to beat market expectations.

Revenue in the first six months increased by a whopping 18% to around CHF 4 billion.

In addition to the reopening of China, Swatch also benefited from the new desire to travel to tourist destinations such as Thailand or Macao. In terms of profit, Swatch pushed the pace even harder. Operating profit soared by 36.4% to CHF 686 million, resulting in a significant improvement in profitability. While the operating margin in 2022 was 15.4%, the Group reported a return of 17.1% as of 30 June.

Innovative timepieces

There is just as little to complain about in the outlook as in the figures. CEO Nick Hayek sees “excellent growth opportunities” in all regions and price segments. In addition, the 68-year-old manager aims to launch more innovative products, especially in the lower and middle segments. As a reminder: Swatch hit the bull’s eye with the MoonSwatch, launched in March 2022. For this purpose, the iconic Speedmaster Moonwatch model of the noble brand Omega was merged with the mass label Swatch. More than 1 million units of the timepiece were sold in the last financial year, and industry experts expect this figure to double in 2023. Swatch has now teamed up with the luxury label Blancpain and launched the new Bioceramic Scuba Fifty Fathoms collection in shops a few days ago. Demand has been enormous, with the first delivery rapidly selling out. It will be interesting to see what ideas Hayek pulls out of his hat next.

On the other hand, the mood has been weighed down recently by a slowdown in Swiss watch exports. In August, exports increased by only 2%, and in July they even declined. Furthermore, persistent economic worries in China are spoiling the appetite for luxury stocks. The share prices of LVMH, Prada and Richemont each fell by around 7% in the past four weeks. In comparison, Swatch clearly did better with a decline of 1%. However, this does not alter the fact that the domestic watch giant is still significantly cheaper than its competitors. Swatch, for example, is trading below its book value (P/B ratio 0.91), while Richemont is assigned a price/book ratio of 3.5. The Swatch stock is also significantly cheaper in terms of the P/E ratio. Based on expected profits for 2024, this is 11.6, while the luxury sector has an average value of over 20.

Investment conclusion

While the fundamentals speak for higher prices, the chart situation of the Swatch stock is rather tricky, as described above. These mixed signs result in different strategies for action. First the bullish: Those who want to bet that the favourable valuation will soon attract bargain hunters will choose a turbo long. An interesting security can be found at Société Générale with the unlimited turbo warrant (Valor: 129373659). This product has a leverage of 4.6 and leaves enough room for the underlying to find a bottom for the time being. At CHF 195.61, the stop threshold is clearly below the psychologically important 200 mark.

Should there be a quick rebound upwards, factor certificates are a perfect solution. These securities, whose hallmark is constant leverage, are specifically designed for short-term movements. In strong-trend phases, factor certificates perform better than classic leverage securities, as the leverage becomes smaller in the case of mini futures and turbos. SocGen has listed nine factor certificates on Swiss DOTS, four shorts and five longs. The latter category includes the product with security number 58423138, which has a constant multiplier of 4. If that’s not enough “oomph” for you, there’s even a product (Valor: 124946813) with a factor of 8.

However, should the current correction phase extend downwards, shorts are in demand. At the latest when the stock dips below the horizontal barrier at CHF 220, the bears will be in charge. Then the 12-month low at CHF 217.20 will quickly come into focus, after which a setback towards the 200 mark could threaten. The unlimited turbo warrant (Valor: 129373667), also listed on Swiss DOTS, with leverage 4.7 and a stop threshold of CHF 280.67 would be a suitable trading instrument in this case.

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