Rolex, Patek Phillipe, Omega… Watches Of Switzerland (LON:WOSG) is associated with some powerhouse Swiss Luxury Watch brands. It is the leading luxury watch retailer in the UK but can this group create enduring value in the manner of these stalwart brands, or will it forever answer to their beck and call?

That’s a big question for prospective shareholders to answer. WOSG can trace its lineage back to the 18th century, but that doesn’t change the fact that watch sellers don’t hold the power here. Brand owners do.

They set the prices, and it is up to Watches of Switzerland to market and sell the product.

But these brand owners need routes to market and in this regard, WOSG has been a faithful servant to them over many decades. That counts for something. It has been a partner of Rolex for a century and it hasn’t lost a partner in over ten years. You can find the rest of the group’s brand partners here.

The luxury watch market is underpinned by strong long term fundamentals and is well positioned for continued growth. It is supply constrained with customer demand remaining significantly higher than availability. The brands have the power, for sure, but can Watches use its scale and sense of history to carve out a similarly significant position in the market?

And shares, since listing in 2019, have nearly doubled - not bad given the group has had to navigate a global pandemic early on in public life.

WOSG was pitched to the Stockopedia Investment Club on the 23rd of March at 658p per share.

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Summary

Bull points: UK market leader expanding into larger US market; high QM stock with double-digit revenue and operating profit CAGRs; cash-generative operations with global top decile return on equity; strong partnerships with supply-driven iconic watch brands (has not lost a partner in 10 years).

Bear points: investment case relies on successful US expansion; lack of bargaining power with premium watch suppliers; tough competition, grey market selling, and newer online operators could threaten business model; recent insider sales.

Profile

Watches of Switzerland Group is a Specialty Retailer in the Consumer Cyclicals sector. It is the UK’s leading luxury watch specialist, with over 35% market share (including nearly 50% of the online market) and accounts for half…

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