Pat McKeough responds to many requests from members of his Inner Circle for specific stock investing advice, as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “Our Top U.S. Stocks” on Thursday.

Last week an Inner Circle member asked us whether a well-known watch and jewellery distributor is a “steal” after its share price slumped following a recent surge. Movado does not make watches, but sells and distributes them under its own brand and through notable designer names. Pat assesses the company’s business and its growing market share and looks at Movado’s prospects of maintaining its leading position in the $500 to $1,500 price range for watches.

Q: Movado is a steal, or so it appears: it surged to around $44 but has now slumped. Is this a buy, or are the fundamentals wrong in this overly competitive fashion business?

A: Movado Group (symbol MOV on New York; www.movado.com) sells and distributes watches and jewellery under its own brands and under license from designers.

Its top banners include Movado, Ebel, Concord, ESQ, Coach, Hugo Boss, Juicy Couture, Tommy Hilfiger and Lacoste.

Movado doesn’t make any of its watches. Instead, it uses independent manufacturers in Switzerland, China and Hong Kong.

The company sells products directly to consumers and through jewellery stores, department stores and a network of independent jewellers in Europe, Asia, Canada, the Middle East, South America and the Caribbean. It also operates 35 outlet stores in the U.S. that sell discontinued models and factory seconds of all of its watches.

Movado shares have dropped from over $44 to below $34 since late August 2014, when the company released its latest quarterly results.

Movado brings in new designers and steps up advertising to revive slow-selling lines

In the three months ended June 30, 2014, Movado’s revenue rose 3.8%, to $143.6 million from $138.3 million a year earlier. Excluding one-time items, earnings per share gained 6.8%, to $0.47 from $0.44. However, that was below the consensus estimate of $0.55.

Movado holds cash of $169.6 million, or $9.07 a share, and has no debt.

The company continues to benefit from growth in the watch industry, and it is gaining market share thanks to its wide range of brands. Two labels, in particular, are selling very well right now—the reintroduced Coach line and the new Ferrari collection.

Meanwhile, the company is boosting sales of slower-selling lines by hiring new designers and spending more on advertising. As a result, Movado holds the leading position in the lucrative $500 to $1,500 price range. Asian markets also continue to perform well.

The stock trades at 13.8 times this year’s forecast earnings of $2.45 a share. It yields 1.2%.

We view Movado as a hold.

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