Watches of Switzerland Group plc (LON:WOSG) Looks Inexpensive After Falling 48% But Perhaps Not Attractive Enough

Watches of Switzerland Group plc (LON:WOSG) shareholders won't be pleased to see that the share price has had a very rough month, dropping 48% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 60% loss during that time.

Although its price has dipped substantially, Watches of Switzerland Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.5x, since almost half of all companies in the United Kingdom have P/E ratios greater than 15x and even P/E's higher than 28x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times haven't been advantageous for Watches of Switzerland Group as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Watches of Switzerland Group

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How Is Watches of Switzerland Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Watches of Switzerland Group's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 8.0% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 178% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 7.2% per year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the market is forecast to expand by 12% per annum, which is noticeably more attractive.

In light of this, it's understandable that Watches of Switzerland Group's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Watches of Switzerland Group's P/E has taken a tumble along with its share price. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Watches of Switzerland Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Watches of Switzerland Group that you should be aware of.

Of course, you might also be able to find a better stock than Watches of Switzerland Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.