Swatch Group (trading under “SWGAY”) saw its rating slashed by two major financial instutions over the past few weeks. UBS moved its recommendation to a red “Sell” for the company’s stocks whereas RBC Capital downgraded it from Outperform to “Sector Perform”.
What gives?
Either they really disagreed with the recent limited edition Mickey Mouse watch releases, or something else is up. And there is indeed. While a change in buyer recommendation on the stockmarket is everyday news, I thought it was particularily interesting to know how they went about justifying the downgrade. RBC Capital was very transparent about it all, and they used information that is available to all of us, the Chrono 24 listings!
The analysis
They made a (detailed) analysis of the listings of the various watch brands available on Chrono24. They came to the conclusion that Swatch Group had too many new, unworn models on Chrono24 (the grey market) compared to non-new watches sold on the platform. They essentially correlate this symptom with an overall bad performance of a specific brand of watches. They boiled it down to the fact that an oversupply on Chrono 24 (by retailers looking to offload surplus stock), was a clear sign that consumer demand for a particular brand is down.
Looking at the charts for the past 6 months the Swatch Group share prices are now down a whopping 39%:
The team from Watchpro did a detailed analysis and highlighted the overall rankings a bit further. From their analysis you could see other brands that didn’t do well in the test. These range from the not so surprising to the baffling (if you ask me). In no particular order: TAG Heuer, Breitling, Panerai, Blancpain, Tudor and Hublot. All the aforementioned had what they considered to be too high percentage of new/unworn watches listed on Chrono 24.
That chart is all kinds of pain, a 40% drop in 6 months is no joke. Makes you wonder for 2019…
To be fair, the YTD, while still red, is quite a bit less harsh (approx 18USD drop to 15USD). But yes, that past semester can’t have been a fun ride so far.
My take is that this is the market giving a forward looking forecast for future cash inflows. Perhaps we should look at Richemont as well to see if they are getting downgraded or their stocks are doing similar?
Totally agreeing with you there, isn’t that what the market always does though? 🙂 For Richemont – check today’s article, it so happens to show very similar chart behaviour indeed! 🙂 Jeff, I think you need to do one of these write ups in the future 🙂