It was just seven weeks ago that watchmaker Movado Group (MOV) , which has been in and out of deep-value land several times over the years, re-entered "double-net" land when its valuation fell below 2x net current asset value, or NCAV. That was at the beginning of the coronavirus-induced economic shutdown, which brought with it the market mayhem we've been experiencing ever since.
Since then, a lot has happened. Three weeks ago Movado furloughed 80% of its North American workforce. The furlough was expected to last from April 6 through the end of May. Movado also cut compensation for salaried workers by 15% to 25% and saw its CEO give up his salary.
Movado also reported fourth-quarter earnings, which featured better-than-expected revenue ($191 million vs. the $185 million "consensus"; just one analyst covers the name) but missed on earnings per share (15 cents vs. 21 cents). That's Movado's third consecutive earnings miss. In addition, the company suspended its 20-cent quarterly dividend, and halted buybacks.
As you might imagine, shares have been pummeled, down nearly 60% year-to-date and 40% in the past six weeks. Yet, in some ways, Movado's stock is much more interesting for those not faint of heart.
During the fourth quarter, Movado generated nearly $3 per share in free cash flow, and its cash position grew from $116 million at the end of the third quarter to $186 million, or $8 per share, at the end of the fourth quarter. Debt stood at $52 million, although subsequent to the quarter's end Movado drew down $30 million from its credit facility.
The increase in cash and decrease in share price has pushed Movado very close to net/net territory (companies trading below net current asset value); as of Thursday's close MOV traded at just 1.05x NCAV; that's down from 1.93x in late February. Movado also trades at just 0.61x tangible book value per share and has a current enterprise value (market cap minus cash plus debt) of just $76 million.
In normal times Movado might be squarely in the deep value investor's crosshairs, but these are not normal times. It appears that MOV has the liquidity to survive a prolonged period of economic slowdown, but we don't yet know when America will be back open for business or how quickly consumers will be spending their money on higher-end watches.
One thing has become clear about MOV in all the years it has bounced in and out of my deeper-value screens -- it is a stock to trade, not buy and hold.
Movado will continue to be on my radar; in my younger days, I likely would have owned it by now. I'm not sure if I'm becoming more timid, or more wise.
(This story originally ran on Real Money Pro at 10:30 a.m. ET on Friday, April 17.)
