Alongside Rolex, Swatch Group is among the biggest watch manufacturers in the world with 2021 sales of CHF 7.31 billion. That is down from CHF 8.48 billion in 2018, though. Apparently, the smartwatch disruption from Apple and company has been taking its toll on legacy watch makers such as Swatch. This may explain why the stock currently sells for less than half its 2014 peak price. In fact, if it wasn’t for the dividends, Swatch stock would’ve returned almost nothing since its 2000 IPO.
With that in mind it is safe to conclude that Swatch is hardly a buy-and-hold-forever type of company. This, however, doesn’t mean investors cannot extract decent returns from it from time to time. For example, buying Swatch stock in 2003 would’ve produced a gain of over 250% over the following four years. Investing in 2009 and holding through 2014 would’ve led to similarly rewarding results.
In other words, timing is crucial when investing in such a cyclical company. Having said that, Swatch stock is down by roughly a third over the past year and not far from its pandemic lows. Can we expect another recovery? Let’s try and find out with the help of the Elliott Wave chart below.
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Swatch ‘s daily chart reveals that the recent drop from CHF 64.30 to CHF 40.40 is corrective. It can be seen as a simple A-B-C zigzag. Wave A is a textbook impulse pattern, marked 1-2-3-4-5, where the five sub-waves of wave 3 are also visible. It was followed by another a-b-c zigzag in wave B up to CHF 58.95. Wave C, in turn, is an ending diagonal which completes the entire retracement.
If this count is correct, the past year’s bear market in Swatch stock is finally over. Prior to it there was an uptrend from CHF 28.56, which can now be expected to resume. Targets north of CHF 65 a share make sense in the long term. From the current price of CHF 43, this means Swatch can add at least 50% to its valuation going forward.
In addition, there is a MACD bullish divergence between the sub-waves of C, highlighting the bears’ exhaustion. Swatch Group’s best days might be behind it, but the stock seems poised for another notable upswing.
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