25-02-2025
The past three-year earnings decline for Swatch Group (VTX:UHR) likely explains shareholders long-term losses
The Swatch Group AG (VTX:UHR) shareholders should be happy to see the share price up 11% in the last quarter. But that doesn't help the fact that the three year return is less impressive. In fact, the share price is down 38% in the last three years, falling well short of the market return.
On a more encouraging note the company has added CHF412m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.
See our latest analysis for Swatch Group
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Swatch Group saw its EPS decline at a compound rate of 37% per year, over the last three years. In comparison the 15% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. With a P/E ratio of 47.81, it's fair to say the market sees a brighter future for the business.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Swatch Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Swatch Group the TSR over the last 3 years was -32%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
Swatch Group shareholders are down 12% for the year (even including dividends), but the market itself is up 14%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.6% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Swatch Group better, we need to consider many other factors. For example, we've discovered 2 warning signs for Swatch Group (1 can't be ignored!) that you should be aware of before investing here.
We will like Swatch Group better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Swiss exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
