Movado (NYSE: MOV) is a watchmaker. It distributes timepieces based on various brands such as Lacoste and Coach (NYSE: COH). And its stock is on the rise today. During early afternoon trading, Movado is up by over 8% on very good volume. As can be expected, an earnings report is behind the excitement.
Now, to be certain, the stats weren't great. Movado is still reeling from the harsh economic times. Sales declined 33% in Q1, and there was a loss per share of $0.37. That compared very unfavorably to a profit of $0.05 per share in the year-ago period. Also, the gross margin slipped significantly.
As Trey Thoelcke mentioned earlier today, Movado beat estimates. While the loss was smaller than anticipated, a big element of today's price action probably centered on the guidance. Movado believes it will generate a profit of $0.50 per share for the full fiscal year. This would compare very favorably to the $0.09 per share earned in the previous fiscal year.
While the guidance should be pleasing to investors, I have to say that the rally in this name is probably a little overdone at this point. Today's buyers are basically betting on a good Christmas season. A lot of the buying in the retail sector is predicated on the same thesis. When I look at how far many of these stocks have come in the last few months, I do shake my head in wonder. Is it all short covering? Probably not. I'm sure there are many legitimate bidders in the crowd.
I nevertheless would not be a buyer of Movado at these levels. As I write this, shares are trading at $11.10. That gives the stock a rough P/E of 22 based on that $0.50 per share outlook. Am I crazy to think that's a little expensive in this environment? Maybe so. My point is, wait until Movado gets a little cheaper before looking at it, if only for a margin of safety.
Disclosure: I don't own any company mentioned; positions can change without notice.
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