My guess is most retail investors take a contrarian approach to investing. It’s when the economic clouds are gathering that we tend to find the best long-term bargains.

Resilient retailers

For example, I’m keen on homeware and furniture retail chain Dunelm. On 14 September, the company released a robust-looking full-year results report. Overall sales came in just over 16% higher year on year. And they were 41% up on the 2019 result before the pandemic.

Looking ahead, chief executive Nick Wilkinson acknowledged the current operating and economic environment is “extremely challenging”. However, he said Dunelm emerged from the pandemic as “a bigger, better business”.  And the directors believe the company “has the tools in place to do that again.”

Positive outcomes aren’t certain. But the way Dunelm navigated the pandemic encourages me to believe the business can thrive when the current economic headwinds diminish.

A strong sector

Continuing the retail theme, I also like Watches of Switzerland (LSE: WOSG), the UK and US watch and jewellery retailer. In August, the first-quarter trading update declared a, “strong start to the year with waitlists continuing to extend”.

The report covered the 13 weeks to 31 July. And the figures were impressive. Overall year-on-year revenue rose by 25% at constant currency rates. But within that, revenue from the US shot up by 76%. In the first quarter, US sales accounted for almost 39% of the total. 

Looking ahead, the directors said they are keeping an eye on the wider macroeconomic environment. But they seem unworried. They believe the strength of the luxury watch category “will continue to support long-term, strong and sustainable sales growth”.

Time will tell whether they are right or not. And it’s worth me bearing in mind that operational challenges can hit any business from time to time. Nevertheless, I’ve aligned my portfolio with the fortunes of this apparently thriving business by buying some of its shares. And my plan is to hold on to them for the long term as the underlying growth story plays out.

Robust cash inflow

I’m also holding a clutch of Britvic (LSE: BVIC) shares. The company operates in the soft drinks sector. And it owns some well-known and popular brands such as Tango, Robinsons, Fruit Shoot, and others.

July’s third-quarter trading update revealed year-on-year sales up by just over 11%. And chief executive Simon Litherland said the outcome reflected “resilient demand”. However, looking ahead, he acknowledged the uncertain economic environment could “continue to weigh on consumer confidence”.

But he is, nevertheless, “confident” in Britvic’s ability to deliver a full-year performance “in line with market expectations”. Meanwhile, City analysts following the firm expect earnings to increase by around 37% in the current year to 30 September. And they have pencilled in a further uplift of about 6% for 2023.

Of course, analysts’ estimates can prove to be wrong. But I’m holding on to my shares in the company because of its long record of steady incoming operating cash flow.

Time to invest?

First, Watches of Switzerland Group (LSE:WOSG) shares have not moved all that much compared to the wider market. In the past three months, they’re down 7%. At the time of writing, they’re trading at 869.5p.

For the 12 months to 1 May, the luxury watch retailer produced sparkling results. In that time, pre-tax profit surged 98%, coming in at £126m. Additionally, revenue grew by 40%.

This is an indication that there’s more traffic moving through stores. It’s also a sign that demand is beginning to increase again as the world continues to emerge from pandemic shutdowns. This could soon lead to a rising share price.

However, there’s the real possibility that a recession may be on the way. This could be bad news for the firm, given that the retail sector usually gets hit hard during a recession. Demand for luxury items may decline as less-affluent-but-aspirational shoppers are forced to rein-in their spending.

Despite this, Shore Capital issued a ‘buy’ rating for the stock, citing its quality and historical relationships with luxury watch brands. It placed a price target of 1,200p on the shares, which is still significantly higher than the current share price. 

Steely determination

Second, Ferrexpo (LSE:FXPO) has seen its share price moving in every direction over recent months. Currently, the shares are trading at 161p, having been above 300p this time last year.

It’s clear that the firm – an iron ore pellet producer based in Ukraine – has been badly impacted by the ongoing conflict. 

For the six months to 30 June, revenue fell by 31%. In addition, pre-tax profit declined by 88%, coming in at $82m. While this may seem disappointing, it’s worth noting that the company is still managing to post a profit, despite the war.

Furthermore, the business has cash of $172m and little debt. This suggests that it could manage its way through any continued difficulties in the short term. 

Ferrexpo is also planning the implementation of its Wave 1 Expansion Project. This could yield around 3m additional tonnes of iron ore pellets per annum. And while the conflict is continuing to make it difficult to export, the company is achieving more exports from ports and by rail into Europe. 

Overall, these two businesses have faced difficulties in the recent past. However, both are trading at low levels and may be positioned to grow in the long term. This could lead to climbing share prices in the near future. To that end, I’ll add both businesses to my portfolio soon.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

GSK 

What it does: GSK is one of the world’s top 10 largest pharmaceuticals producers thanks to drugs like Tivicay and Advair. 

By Royston Wild] 

The GSK (LSE: GSK) share price has plummeted during the past month amidst fears over stinging legal action in the US. It is believed a swathe of lawsuits related to its Zantac heartburn treatment could cost it billions of dollars. 

However, I believe the threat of such colossal damages is now well baked into GSK’s share price. I’d buy the FTSE 100 business owing to its exceptional defensive qualities. The essential nature of its operations should help profits to remain robust even as the global economy toils. 

In fact, latest financials show that the pharma giant is actually going from strength to strength. Total sales rose by almost a fifth between April and June, to £6.9bn. 

City analysts have been upgrading their profits forecasts following the news. They now think GSK’s earnings will rise 10% year on year in 2022 and 8% next year, too. 

This means that today GSK trades on a forward P/E ratio of just 11.4 times. I think this represents super value for money for this growth stock. 

Royston Wild does not own shares in GSK. 

Melrose Industries

What it does: Melrose Industries is a holdings business that seeks to acquire and improve struggling engineering firms.

By Zaven Boyrazian. Melrose Industries (LSE:MRO) is a holdings company. The group acquires underperforming engineering businesses intending to turn them around before selling them on at a higher price. But the engineering sector, especially aerospace, hasn’t exactly had a great time since early 2020.

Fortunately, now that the travel sector is ramping back up, Melrose’s future looks much brighter. The company has an excellent track record of delivering successful turnarounds. And assuming it hits its margin targets, earnings should be set to swell over the coming years.

There is an undesirable £1.7bn of debt equivalents on the balance sheet that is likely to become more expensive to service as interest rates get hiked. But with just over £470m of cash in its war chest, I see no immediate solvency risk.

That’s why I believe Melrose stock has some solid growth potential as it recovers to its former glory.

Zaven Boyrazian owns shares in Melrose Industries.

JD Sports Fashion

What it does: JD Sports Fashion sells sports fashion and outdoor footwear and apparel. 

By Paul Summers: I can understand retail stocks not being popular with investors right now. Even so, the near-halving of growth stock JD Sports Fashion (LSE: JD)’s share price in 2022 feels a bit overdone. 

Yes, not many people will be loading up on pricey trainers in the current environment. And, yes, being forced to sell Footasylum for less than half the price it paid to acquire it due to concerns from the UK’s competition watchdog won’t have boosted investor confidence. New CEO Regis Schultz has his work cut out.

Still, I reckon there’s a good brand here. A price-to-earnings (P/E) ratio of nine could also prove excellent value if JD meets its own conservative earnings estimates when half-year numbers are announced on 22 September. Encouragingly, there’s no interest from short sellers as things stand.

I suspect JD will deliver the goods again once confidence returns.

Paul Summers has no position in JD Sports Fashion

Sage

What it does: Sage is a leading provider of cloud-based accounting and payroll solutions for small- and mid-sized businesses.

By Edward Sheldon, CFA. My top growth stock is Sage (LSE: SGE). To my mind, it offers growth (and quality) at a reasonable price.

Sage’s most recent trading update, for the nine months to 30 June 2022, showed that the company is generating solid growth right now. For the period, recurring revenue was up 9% to £1,330m while organic total revenue was up 6% to £1,412m. Looking ahead, the company said that it now expects organic recurring revenue growth for this financial year to be towards the top end of its guidance range of 8-9%.

As for the valuation, Sage currently trades on a price-to-earnings (P/E) of around 26 (using next financial year’s projected earnings). That is higher than the average FTSE 100 P/E ratio. However, I don’t think it’s excessive given that Sage is a high-quality software company with recurring revenues.

Of course, this company is not without risk. One issue to consider is that new competitors are popping up. Overall, however, I think the stock has considerable appeal right now.

Edward Sheldon owns shares in Sage.

Rolls-Royce Holdings

What it does: Rolls-Royce is a British-based multinational aerospace and defence company that’s been struggling since the pandemic.

By Dylan Hood. Rolls-Royce (LSE:RR) shares have struggled to gain any real momentum since the onset of the pandemic. Currently sitting at 80p, they have fallen 37% year-to-date and 30% over the past 12 months. However, earlier this year, Rolls released results which highlighted the firm had turned a profit for the first time since its £4bn loss in 2020.

In addition to this, its more recent H1 2022 results revealed a record order intake for Power Systems and a momentous £1.1bn improvement to cashflows. The firm is also leading the charge in small to medium nuclear reactor technology and has already signed contracts with governments around the world to implement this technology after their approval (expected in 2024).

Finally, as the threat of the pandemic becomes less prevalent, flying hours will continue to increase. Already in 2022, they have climbed 42% compared to 2021. Rolls makes most of its money servicing jet engines, so this is another big plus.

Dylan Hood does not own shares in Rolls-Royce.

Watches of Switzerland

What it does: Watches of Switzerland is a British luxury retail group that specialises in selling Swiss watches and jewellery. It also offers insurance and repair services.

By John Choong. With inflation expected to continue heading upwards, I’m turning my attention to luxury goods. This is because luxury goods tend to have inelastic demand and are catered to a niche market that either benefits from high inflation or isn’t very much affected by it.

This was evident in Watches of Switzerland’s (LSE: WOSG) latest trading update which showed positive numbers. The FTSE 250 firm saw its revenue grow by 31% while many other retailers continue to suffer declines on a year-on-year basis. The outlook given by management was also generally positive as it expects to ends it financial year with 17% to 21% revenue growth, while expanding its offices, showing confidence that demand for its products are still hot.

While revenue growth slowed exponentially from its pandemic highs, I think a reasonable price-to-earnings (P/E) ratio of 19 and an average price target of £13.37 makes this stock a lucrative one for my portfolio. As such, I’ll be looking to add Watches of Switzerland to my portfolio in the near future.

John Choong has no position in Watches of Switzerland

S4 Capital

What it does: S4 Capital is a digital marketing agency network.

By Christopher Ruane. It has been a brutal few months for shareholders in S4 Capital (LSE: SFOR), with the growth shares trading for less than a fifth of where they stood a year ago.

Revenue growth remains strong and I think that even in an economic downturn, demand for digital marketing should stay high. The problem for S4 is its business model. Growing costs threaten to delay the path to profitability. Internal control systems have been found wanting, leading to delays in publishing results.

Many investors have abandoned the shares. But directors have been buying and I think the basic business model remains promising. There is work to be done in scaling quickly without letting costs balloon, as well as restoring investor confidence. I expect chairman Sir Martin Sorrell to address those concerns fast.

Meanwhile, I think the huge fall in the S4 Capital share price presents a buying opportunity for my portfolio.

Christopher Ruane owns shares in S4 Capital.

The London Stock Exchange Group

What it does: the company runs the London Stock Exchange. It also provides data and clearing services via its subsidiaries.

By Stephen Wright. In my view, The London Stock Exchange Group (LSE:LSEG) is one of the most interesting companies in the FTSE 100. I was very impressed with its most recent trading update and that’s why the stock is my top UK growth stock for September.

The company has three major segments – capital markets, data and analytics, and clearing services. Each of these reported solid results. As a result, profits this year are 21% higher than they were a year ago.

Until recently, I’ve found the London Stock Exchange Group difficult to value. Its recent acquisition of Refiniitv made its accounts a little complicated.

More recently, though, things have settled down. I think that the stock is trading at a price-to-earnings (P/E) ratio of around 20 and I think that it’s good value at those levels.

Stephen Wright does not own shares in The London Stock Exchange Group.

Harbour Energy

What it does: Harbour Energy is a UK-based oil production firm that operates across the North Sea, Asia, and Central America.

By Andrew Woods. In the past month, the shares in Harbour Energy (LSE:HBR) are up 25%. Recently, the company has been benefiting from higher oil prices, with Brent crude currently trading above $100 per barrel.

For the six months to 30 June, the business reported that pre-tax profits grew to $1.5bn, up from $120m for the same period in 2021. What’s more, its guidance range for full-year production increased from between 195,000 to 210,000 barrels, to between 200,000 to 210,000 barrels.

Furthermore, the firm stated that it was embarking on a $300m share buyback scheme, up $100m from previous announcements.

Financially, the company has a cash balance just under £600m, and total debt of £3bn. This debt would be something I’d like to see fall in coming months, because it appears to be quite large.

Overall, though, production is solid, and the broader economic situation seems to be favouring the company, hence it may have scope to grow.

Andrew Woods has no position in Harbour Energy.

Luxury stocks clock in

There are several reasons to invest in luxury stocks during times of high inflation. The first is that customers purchasing luxury goods are usually least affected by inflation, given their financial position. The second is that retailers are able to pass on higher costs without impacting demand.

I imagine this to be the case for Watches of Switzerland. The company sells luxury watches and jewellery, while also providing servicing, repairs, and insurance services. It operates over 100 showrooms in the UK and 40 showrooms in the US. The FTSE 250 firm also operates through several transactional websites that include Goldsmiths, Mappin & Webb, Watches of Switzerland, Mayors Jewelers, and Betteridge brands.

Dazzling numbers

Keeping that in mind, the luxury retailer posted a rather robust set of numbers for its first quarter. Despite sales growth showing a slowdown, growth was still rather impressive for what I’d classify as a value stock. Shore Capital analyst Eleonora Dani echoed this sentiment as she described it as a “solid trading update“.

As a prospective investor, it’s nice to see broad-based growth across the company’s line of products. This was helped by continued improvement in its range of watches, but more notably, its jewellery. CEO Brian Diffy expects the strong momentum from Q1 to carry into Q2, and the rest of the year. Management even guided for the FTSE 250 company to finish the year strongly as it reiterated its outlook for its financial year.

Additionally, Diffy stated that the company’s products continue to show strength in demand, with client interest continuing to expand. Consequently, the trader will be focusing on attracting even more new clients and growing its market share in the UK and US. As travel across the Atlantic returns to pre-pandemic levels, this should serve as a tailwind, as all of its airport showrooms have now reopened.

Watch list

Although I’m no watch expert, the overall consensus seems to show that demand continues to strongly outstrip supply for luxury watches. And based on the latest results, the Watches of Switzerland management team has been showing its prowess by executing excellent strategic decisions while adapting to the tougher macroeconomic conditions.

With a rather steady balance sheet, boasting a debt-to-equity ratio of 33%, I think Watches of Switzerland is well equipped to continue its growth while remaining robust in the event of a recession. Therefore, I’m relatively confident that the firm’s share price can continue to perform. After all, it’s up 15% from its year-to-date low. Nonetheless, I’m slightly wary of the latest UK retail sales data, which showed non-food store sales declining 0.3% on a month-on-month basis, albeit still above 2019 levels.

Even so, this may not be truly indicative of the FTSE 250 company’s fortunes, given that it operates in a very niche market. So, with an average price target of £13.37, I’ll definitely be adding Watches of Switzerland to my watchlist for now and will be looking to purchase shares in the near future.

Luxury watches

You may have already guessed but Watches of Switzerland specialises in luxury Swiss timepieces. These are often considered the most luxurious and costliest watches in the world. In fact, Watches is the UK’s largest luxury watch retailer and has 16 branches in the UK with targeted growth to expand upon this.

So what’s happening with the Watches of Switzerland share price currently? Well, as I write, the shares are trading for 815p. At this time last year they were trading for 1% more at 825p. More tellingly, the shares have pulled back from 1,514p to current levels since the beginning of 2022, which is a 46% drop.

I’m not concerned by the share price drop noted above. Many markets across the world have pulled back in recent months due to macroeconomic and geopolitical factors.

To buy or not to buy

So what are some of the pros and cons of me buying the shares?

FOR: Despite macroeconomic headwinds, Watches’ target demographic isn’t usually affected much by issues such as the cost-of-living crisis. In fact, there has been an increase in newly wealthy people since the pandemic. Its position, profile and growth should continue despite current issues faced by the majority of the country.

AGAINST: For any growth stock, growing presence and performance is easier said than done. I find this is especially the case in the retail business. Many businesses have fallen foul of trying to rapidly expand. This is one key area I will keep a keen eye on developments regarding Watches of Switzerland. Competition in the luxury watch marketplace is intense too, which could impede growth plans.

FOR: I noticed that Watches has a good track record of performance showing consistent growth. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that revenue and profit have increased year on year for the past four years. This impressive growth in performance is a vital component that could underpin continued growth for the business.

AGAINST: At current levels, Watches shares do still look a bit expensive on a price-to-earnings ratio of 24. Is any growth already priced into the shares? I will keep a keen eye on developments such as performance and growth activity ahead.

A growth stock I would buy

Overall, I like the look of Watches of Switzerland for my holdings and I would be tempted to buy some shares. Its recent track record of growth and performance excites me. Furthermore, its profile and presence to date, coupled with a burgeoning market to sell its products to, make me believe it could be an excellent growth stock to buy and hold for the long term.

I think some of these heavy fallers already look like they might be ‘no-brainer’ buys for my portfolio.

Halma

FTSE 100 health & safety tech firm Halma (LSE: HLMA) continues to appeal. Having lost 31% in 2022 so far, it leaves the share near its 52-week low. For a company whose products and services are deemed “essential“, thanks to increasing environmental and health legislation, that smacks of an opportunity to me.

Back in March, the company said it expects to deliver “substantial revenue growth” when full-year results are announced in June. Adjusted pre-tax profit is also likely to be in line with analyst predictions.

Halma looks in great financial shape too. This should permit further acquisitions to help drive yet more growth, not to mention keep the run of 42 consecutive years of dividend growth going.

Of course, no investment case isn’t without a niggle or two. With Halma, it’s the valuation. A P/E of 34 is far from cheap (although it’s far better than it once was). Nevertheless, I’d be happy to start buying today.

Watches of Switzerland

Also on my list of potential ‘no-brainer’ buys is luxury timepiece seller Watches of Switzerland (LSE: WOSG). At the time of writing, WOSG’s valuation has tumbled 35% in 2022.

This isn’t completely illogical. After multi-bagging in value between 2020 and 2022, some profit-taking was always on the cards here. It might be argued that the dramatic rise in the cost of living and the subsequent hit to discretionary spending made selling a logical move.

Nevertheless, I reckon WOSG’s target group is unlikely to be feeling the pinch as much as others. What’s more, the company has already said trading has been “in line with expectations” in Q4. Another update is due tomorrow.

As such, I suspect more serious falls are unlikely, albeit not impossible. A forecast P/E of 18 already looks great value for a company whose share price should recover its positive momentum in time.

Polar Capital Technology Trust

The last stock for today is actually a fund rather than an individual company — Polar Capital Technology Trust (LSE: PCT).

Like the others mentioned, PCT’s value has crashed in the year to date. Personally, I see this fall as another chance to begin building a position in the FTSE 250 member that holds some of the biggest and best tech stocks in the world before sentiment changes for the better.

Naturally, no one knows when a recovery will kick in. Things could get even worse if interest rates rise at a faster clip than expected. However, the diversification offered by this investment trust helps mitigate this to some extent. A total of 104 company stocks are held in the portfolio.

Unless I think the likes of Microsoft, Apple and Alphabet are incapable of thriving again, I’m simply being given a chance to snap them up on sale. The only downside here is the inevitable management fees that come with investing in an actively managed fund.

With that in mind, here are two FTSE 250 stocks I would buy for my portfolio today and one company I do not own and would sell if I did. 

Luxury market 

My first ‘buy’ company is the luxury watch retailer, Watches of Switzerland (LSE: WOSG). Demand for luxury watches has surged over the past two years. This company is rising to the challenge of growing demand by expanding worldwide.

With its windfall profits, the group is plotting a global expansion. It is looking to grow its market share in Europe and the US over the next few years through a combination of organic growth and acquisitions.

While this strategy is exciting, I am wary that many retailers have struggled in the past due to overexpansion. This is the most considerable risk the group faces. 

Despite this headwind, with more growth on the horizon, I am happy to add this FTSE 250 stock to my portfolio right now.  

Defensive income 

With uncertainty building in the global economy, I have also been looking for defensive equities to add to my portfolio. So I have settled on the water company Pennon (LSE: PNN).

Water is a highly defensive market. Corporations can increase their bills to consumers at a rate equal to, or above, the inflation rate every year, and customers usually have to pay as water is an essential service. 

That said, the most significant risk to the company’s growth is regulation in the long run. The water regulator, Ofwat, dictates how much Pennon is allowed to charge consumers. It could clamp down on the business if it thinks it is charging too much. 

Still, these qualities suggest that the business can continue to grow in an inflationary environment, making it the perfect stock to own right now. 

The shares also offer an attractive dividend yield of 3.4%, at the time of writing. This is not the highest dividend yield on the market, but the qualities outlined above suggest the dividend is more attractive than most. These are the reasons I would buy the stock right now. 

FTSE 250 stock in trouble 

While I would buy the companies outlined above, I would also sell Carnival (LSE: CCL) if I owned it and would certainly not buy it today. The cruise line operator nearly collapsed during the pandemic, and while customers are returning, it could be years before the business returns to full health. 

The debt it had to take on to push through the pandemic has severely weakened its balance sheet. It is not clear when the business will be able to start reducing these liabilities. Consumers are in no rush to return, and in the meantime, the enterprise continues to lose money. 

Nevertheless, the company’s outlook is not entirely negative. Some consumers are returning, and they seem willing to spend more. If this trend continues, its outlook may improve. 

However, I am not buying this recovery story, considering the risks outlined above. I think the two FTSE 250 stocks outlined in the first half of this article have much brighter prospects. 

Luxury watch purveyor

Watches of Switzerland is the UK’s largest luxury watch retailer. If you hadn’t already guessed, it specialises in Swiss timepieces. These are often seen as the best and priciest in wrist wear. The company has 16 branches throughout the UK.

As I write, WOSG shares are trading for 1,264p. A this time last year, the shares were trading for 650p, which is a 94% return over a 12-month period.

In times of economic uncertainty, the wealthy are usually the least affected. In addition, the number of newly wealthy people seems to be on the rise. This is partly linked to heavy investment in tech stocks since the pandemic began as well as tech-related investments such as cryptocurrencies, which are becoming more popular, even among traditional investors. Tech individuals are beginning to dominate rich lists such as the ones published by Forbes.

2021 success and looking ahead

The WOSG share price increased nicely due to positive growth and better than expected performance. A H1 report released in December proved this. The FTSE 250 incumbent reported that revenue increased over 40% compared to the same period last year and net operating profit increased by over 50%. Crucially, a debt position of £22m last year turned into a net cash balance of £30m this year.

So what’s next? Watches of Switzerland announced a growth plan last summer for the next five years. This could boost the shares to never before seen levels and provide generous returns to investors. Part of this plan includes increasing its position in the UK market. In addition to this, it wants to increase its presence in the key US and EU markets. Both of these markets are bigger than the UK and could be more lucrative. A vital part of this growth initiative is to enhance its e-commerce offering. The rise in the e-commerce shopping experience has been accelerated by the pandemic.

FTSE stocks have risks

Despite a successful 2021, Watches of Switzerland could face roadblocks in its growth plans. Growth is not easy and many issues can occur. Despite bucking economic trends, the post-pandemic global economic recovery is still uncertain and, after all, watches are a luxury item. In addition to this, the rise of new wealthy individuals means there are lots of firms vying for their business so competitors in the market could affect growth in 2022 and beyond. Finally, the shares do look a bit expensive with a price-to-earnings ratio of 41 as I write. There is the risk the growth could already be priced in.

Overall I believe Watches of Switzerland could be a great FTSE stock to add to my holdings. I would buy at current levels and I am excited about its journey ahead. It has a clear plan in mind, a healthy balance sheet to support growth and a track record of consistent growth. I do understand past performance is not a guarantee of any future performance, however. 2022 could be another fruitful year for Watches of Switzerland if 2021 is anything to go by.

Indeed, as the coronavirus pandemic spread worldwide in 2020 and retailers were forced to shut their doors to control the spread, the stock slumped to 179p, from 390p, at the beginning of 2020. 

However, after hitting this all-time low, shares in the retailer have rallied a staggering 670% since the beginning of April 2020. 

FTSE 250 retailer profits 

Since the beginning of the pandemic, the retailer’s profits have jumped higher. Early in August 2020, the organisation published its numbers for the financial year ending 26 April 2020. The company posted sales of £798m for the 46 weeks to 15 March 2020. Sales then plunged to just £12.8m in the six weeks to 26 April. Overall, sales during the first six weeks of the world’s fight against the virus slumped 85%. 

As the world started to open up, the company’s sales also began to recover. Revenues surpassed management expectations for the first quarter of its 2021 financial year. Total group sales were down just 28% year-on-year. That was a notable improvement on the trading performance reported at the beginning of the pandemic. 

Shares in the FTSE 250 corporation started to head higher as it reported successive positive updates. In its half-year results for the 2021 financial year, the firm reported revenues of £414m, down just 2.6%.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 27% compared to the prior-year period. Even though sporadic store closures beset the group during the period, EBITDA profits still rose, thanks to higher online sales and sales of higher-margin items. 

For 2021, the company reported overall revenue growth of 13.3% and EBITDA growth of 35%. Luxury watch sales were a significant driver for the business. Sales of high-value watches jumped 16% for the year. 

Growth plan

After these numbers were published, the company introduced its long-term growth plan for the next five years. Management wants to develop and reinforce the group’s sector-leading position in the UK luxury watch market. It also wants to become the “clear leader” in the US market, alongside building a strong presence in Europe. 

The group anticipates its US revenue will grow at a compound annual rate of 25-30% over the next five years. Meanwhile, in its home market, the FTSE 250 retailer thinks the jewellery and luxury watches market will expand at a compound annual rate of 8-10% over the next five years. 

The enterprise hopes to be able to capitalise on this expansion by investing in and expanding its existing footprint in these markets. The company will also develop its e-commerce offer to reach more consumers and provide a better online experience. 

This growth potential seems to be one of the main drivers behind the recent share price performance. 

Watches of Switzerland races ahead

The stock market rally that started in November 2020 impacted it positively, like it did all recovery stocks. Its price got back to pre-pandemic levels quickly enough. But it was this year the stock really rallied. Its strong results have a role to play in this. For the half-year ending 26 October 2021, the company reported a strong 41.5% increase in revenue compared to the same half a year ago. Its net profits increased by an even stronger 78.9%! It also upgraded its full-year guidance last month for both revenue and profits, despite the fact that tourism and airport-related business is expected to remain below pre-pandemic levels. This led to a sharp rise in its share price. 

If the economic recovery continues, I reckon that the stock could continue to make gains. Periods of economic expansion are good for discretionary spending on items like watches and jewellery, which the retailer focuses on in the UK and the US. Considering that the UK’s household savings reached all-time-highs in the past year, higher spending post-pandemic could continue to be strong. 

Risks to the FTSE 250 stock

However, the recovery numbers have been somewhat weak so far. And with the Omicron variant around now, it is possible that the weakness will continue into 2022. This could slow down any continuing increase in the FTSE 250 stock’s price. And it could slow down stock markets as well. In any case, I think its price-to-earnings (P/E) ratio is pretty steep at almost 48 times. It is entirely possible that that ratio may look far more reasonable in a few months’ time when its next earnings report comes out (if its earnings remain strong). But there is still some time before that happens. 

What I’d do

In the meantime, the Watches of Switzerland share price has risen a bit too much, in my view. To answer the question asked in the title, I think it might indeed be too late to for me buy the stock. If I had bought it a year ago, it would have been a good time to do so. But with question marks around the recovery again and its own share price rise, I am not entirely convinced it is a good idea to buy the stock now. I will wait and see how the overall situation plays out in the next few months and decide on it then. I will focus on stocks I believe have more potential for now.