Watches of Switzerland Group PLC's (LON:WOSG) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Explore Watches of Switzerland Group's Fair Values from the Community and select yours

With its stock down 21% over the past three months, it is easy to disregard Watches of Switzerland Group (LON:WOSG). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Watches of Switzerland Group's ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Watches of Switzerland Group is:

10.0% = UK£54m ÷ UK£540m (Based on the trailing twelve months to April 2025).

The 'return' is the yearly profit. That means that for every £1 worth of shareholders' equity, the company generated £0.10 in profit.

Check out our latest analysis for Watches of Switzerland Group

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Watches of Switzerland Group's Earnings Growth And 10.0% ROE

At first glance, Watches of Switzerland Group's ROE doesn't look very promising. However, its ROE is similar to the industry average of 8.9%, so we won't completely dismiss the company. Having said that, Watches of Switzerland Group has shown a modest net income growth of 9.3% over the past five years. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing Watches of Switzerland Group's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 8.4% over the last few years.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Watches of Switzerland Group fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Watches of Switzerland Group Using Its Retained Earnings Effectively?

Watches of Switzerland Group doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the decent earnings growth number that we discussed above.

Summary

On the whole, we do feel that Watches of Switzerland Group has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.