Rising Global Affluence Will Unlock Premium Watch Experiences

Key Takeaways

• The company is poised to become a dominant digital and experiential platform in luxury watches, leveraging acquisitions, brand relationships, and scale for superior margins and growth.
  
• Strategic positioning amid market trends and industry consolidation enables enhanced pricing, inventory control, and sustained competitive advantage over peers.
  
• Heavy investment in physical expansion, reliance on a few key luxury brands, and shifting consumer trends expose the company to margin pressure and heightened earnings volatility.

Catalysts

Operates as a retailer of luxury watches and jewelry in the United Kingdom, Europe, and the United States.

• Analyst consensus expects robust online and advertising revenue growth from the Hodinkee acquisition, but the long-term platform potential is significantly underestimated-Hodinkee's vast audience and editorial credibility combined with Watches of Switzerland's multi-brand inventory and servicing infrastructure could enable it to become the unifying online commerce, media, and marketplace ecosystem for luxury watches, unlocking step-change digital revenue and industry-leading net margins.
  
• While analyst consensus sees Certified Pre-Owned (CPO) as a strong revenue growth lever, the acceleration in CPO adoption, the normalization of watches as high-value investment assets, and Watches of Switzerland's unmatched scale, trust, and brand relationships position the company to capture outsized market share as the CPO category matures-supporting both double-digit top-line growth and sustained gross margin expansion.
  
• The convergence of global affluence growth, particularly in the U.S. and Asia-Pacific, with the company's proven operational model and early-mover advantage sets up a multi-year runway for revenue compounding at rates above market, as luxury becomes an accessible status symbol and key gifting/experiential category for a widening affluent consumer base.
  
• The group's strategic investments in flagship, mono-brand, and experiential retail-anchored by exclusive showrooms with dominant Swiss brands and rapid branded jewelry expansion-not only drive incremental sales per square foot, but also reinforce allocation and client loyalty, positioning the business for structural improvement in net margin and bargaining power with suppliers.
  
• Industry consolidation combined with ongoing supply constraints in high-end Swiss watches will structurally advantage scale players like Watches of Switzerland, enabling better inventory allocation, higher pricing power, and superior cash conversion-leading to above-peer returns on capital and long-term outperformance in earnings growth.

Watches of Switzerland Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Watches of Switzerland Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Watches of Switzerland Group's revenue will grow by 7.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.3% today to 5.6% in 3 years time.
• The bullish analysts expect earnings to reach £113.1 million (and earnings per share of £0.48) by about September 2028, up from £53.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.3x on those 2028 earnings, up from 15.5x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 23.5x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.68%, as per the Simply Wall St company report.

Watches of Switzerland Group Future Earnings Per Share Growth

Risks

• The company is heavily investing in physical showroom expansion for flagship retail and mono-brand boutiques at a time when digital disruption and direct-to-consumer sales models are growing, potentially depressing future returns on capital and net margins if consumers further shift to e-commerce or if luxury brands continue to prioritize direct online sales.
  
• There is continued reliance on a small number of dominant brands such as Rolex and Patek Philippe, with explicit mention of margin contractions as a result of brand partners responding to new U.S. tariffs by imposing mid-single-digit price increases and reducing authorized dealer margin percentages, putting pressure on gross margins and group earnings.
  
• The bulk of recent and prospective growth is concentrated in the U.S. and U.K. markets, leaving Watches of Switzerland exposed to regional economic volatility, regulatory changes, and geopolitically driven risks such as tariffs, all of which could destabilize revenue streams and lead to greater earnings volatility.
  
• The industry is witnessing changing consumer tastes, with younger generations less interested in traditional wristwatches in favor of smartwatches and other digital devices, risking a secular decline in demand and thus threatening long-term group revenue growth despite recent strong performance.
  
• Competitive pressures are likely to intensify from both other multi-brand retailers and robust online luxury marketplaces, increasing the risk of margin erosion and loss of market share, which would negatively affect both revenue and long-term profitability.

Valuation

• The assumed bullish price target for Watches of Switzerland Group is £5.75, which represents two standard deviations above the consensus price target of £4.33. This valuation is based on what can be assumed as the expectations of Watches of Switzerland Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.9, and the most bearish reporting a price target of just £3.6.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £2.0 billion, earnings will come to £113.1 million, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 10.7%.
• Given the current share price of £3.52, the bullish analyst price target of £5.75 is 38.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.