Movado: Global Watch Brand, Delivers Value Despite Tough Outlook

A.J. Noronha of Desai Capital Management presented his in-depth investment thesis on Movado (US: MOV) at Best Ideas 2020.

Thesis summary:

Movado is a global watch brand with a strong history and well-established, globally-known brand names that recently traded at a substantial discount to both intrinsic value and historical price levels.

The foundation for A.J.’s value investment philosophy is to find companies whose market price trades at a substantial discount to intrinsic value, creating a margin of safety for a long investment position that provides substantial upside and minimizes downside risk. From a traditional value investor perspective, the company offers an attractive valuation using both a multiples (P/B, P/S) and DCF framework, sustainable margins, a reasonable capital structure, and a moderate dividend.

One major catalyst is the large industry trend toward consolidation, which may provide Movado with an opportunity to exit via acquisition that could drive shareholder returns. One major influence on A.J.’s selection of this stock was a recent Forbes cover story on Bernard Arnault using this method to build Louis Vuitton into a powerful luxury brand across multiple industries.

While there are potential industry headwinds via increased smartwatch adoption and declining in-store retail sales, the company has been proactive launching its own smartwatch-enabled watches, acquiring high-growth fast fashion brands targeting the younger market, and has an attractive blend of owner (Movado, Concord, Ebel) and licensed (Coach, Ferrari, Lacoste, Huge Boss among others) brands creating strong brand equity. At a recent price of $21 per share, A.J. believes Movado has over 40% upside.

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About the instructor:

A.J. Noronha, CFA has over ten years of investment management experience, and has worked closely with Mr. Desai since Desai Capital Management’s inception in 2013 with all aspects of the fund, with his primary responsibilities being equity research, due diligence, and developing investment theses for DCM’s portfolio. He has been ranked as highly as #1 (Value), #6 (Long), and #9 (both Overall and North America) in SumZero’s independent analyst rankings, and his independent research on Dow Chemical was selected as one of their top ideas of 2015.. He served as an instructor for MOI Global’s Best Ideas 2018 and Wide Moat Summit 2018, and was an invited participant (non finalist) in the 2017-2018 Sohn Conference Foundation Idea Contests, 2017 SumZero/Van Biema Value Partners Idea Challenge, and 2019 SumZero Best Short Ideas Challenge. Prior to DCM, Mr. Noronha gained investment experience working for a mid-market PE/VC fund, and also co-founded and served in a C-level role for a biomedical engineering startup. He earned a degree in Finance, magna cum laude, from the University of Notre Dame, where he was selected to be a member of the prestigious Applied Investment Management honors finance course where students manage a portion of the University endowment under the guidance of the Chief Investment Officer, and also holds a JD with Dean’s List honors & a concentration in business enterprise (selected coursework taken through the Kellogg School of Management) from Northwestern University. He is a proud CFA Charterholder, is an active Candidate Member of the CFA Society of Chicago & serves on its Professional Development Advisory Group Board, and is a member of Irish Entrepreneurs & Harvard Alumni Entrepreneurs.