This could be the best performing FTSE 250 stock of 2021. Is it too late to buy?
Recovery stocks were expected to perform well this year after vaccines were developed last year. And many of them have indeed seen a pick-up in both performance and investor interest. But this particular stock has far surpassed all others. Watches of Switzerland (LSE: WOSG), the FTSE 250 watches and jewellery retailer, saw a massive 138% increase in its share price over the past year up to 20 December, a report by Interactive Investor showed. It was the biggest index gainer in 2021 up to that date. As I write, it has gained even more, rising by 150% from a year ago!
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.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.