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Since 2025 kicked off, the FTSE 250‘s delivered a robust 8.8% total return. However, not all of its constituents have been so fortunate. And Watches of Switzerland Group (LSE:WOSG) shareholders have learned this first-hand as the luxury jewellery stock tumbled 36% since January.
However, as most seasoned investors know, some of the best buying opportunities can often be found among the worst-performing stocks. So has this recent downward volatility created a secret long-term buying opportunity? Let’s explore.
What’s going on with luxury watches?
At first glance, the downward trajectory of this FTSE 250 stock may not make a lot of sense. After all, revenue’s actually rising and has even reached a record £1.65bn in its 2025 fiscal year (ending in April). However, when digging deeper, several problems start to emerge.
Despite higher sales, profits are shrinking. The luxury watch sector’s experiencing inflation driven by higher gold prices as well as the strong Swiss franc. But most crucially in the group’s critical US market, tariffs have sent import costs soaring.
Even after hiking retail prices, not all of the cost increases have been successfully passed along, resulting in margins being squeezed. And this pressure may only get worse if higher tariffs are introduced. As such, management’s warned that further margin compression could materialise in its 2026 fiscal year, dampening investor sentiment even further.
With that in mind, seeing the stock price retreat isn’t entirely surprising. But have investors overreacted?
A potential opportunity?
Even with the lacklustre guidance, the drop in Watches of Switzerland Group’s share price has put the forward price-to-earnings ratio at just 8.5.
The fact that sales are still rising, especially in the US despite higher costs, points towards strong demand, particularly for brands including Rolex, Patek Philippe, and Omega. The company’s having little trouble maintaining long waiting lists for unique timepieces, supporting higher unit economics.
Combining this with ongoing efficiency initiatives and cost controls, management seems to have a firm grip on its finances. Pairing all this with the fact that even the company has started capitalising on its weakened share price with a £25m buyback scheme points to long-term confidence.
The bottom line
All things considered, this weakened FTSE 250 enterprise may present a compelling long-term investment opportunity. The valuation reset seemed to create an interesting entry point for investors seeking exposure to the luxury market. And as an industry leader with exclusive relationships, Watches of Switzerland appears to be a strong portfolio candidate.
However, there’s no denying the group carries notable risks. Discretionary spending on luxury items tends to plummet during periods of economic volatility. As such, even with its proven brand leverage, the stock could end up tumbling further if tariff-induced economic headwinds intensify in the US.
Personally, I’m waiting to see how the situation evolves before considering jumping in. But for investors with a high risk tolerance, this could be an opportunity worth exploring further.
