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Movado Group, Inc. (MOV) designs, sources, markets and distributes watches. Its quality watches are sold in almost every price category comprising the watch industry and its portfolio of brands includes Movado, Ebel, Concord, ESQ, Coach Watches, HUGO BOSS Watches, Juicy Couture Watches, Tommy Hilfiger Watches and Lacoste Watches. The Company also designs, develops and markets Movado-branded jewelry, which it retails in its Movado Boutiques.

The company, which is based out of Paramus, NJ, is a small company with a market capitalization of $265 million. Movado stock reached a high of $35 a share in July 2007. The stock reached as low as $4.65 a share in March 2009 before rallying to its current level of $10.78 a share. The stock which was dirt cheap at its low in March last year is still undervalued at its current level based on various quantitative and qualitative factors.

The stock, which has faced short term difficulties due to the severe recessions, was pushed down to irrationally low levels. Investors are overreacting due to Movado’s severe earnings decline and its suspension of its dividend for the foreseeable future. The company which has lost money the past several quarters is expected to lose money for the next several quarters. The stock is also undervalued because it is small and not covered by many analysts (as is the case with many small cap stocks)

One of the reasons Movado has a good future is that its balance sheet is as good shape as it has ever been. It is hard to find a company with a balance sheet as strong as Movado’s. The company has more cash and receivables than total debt. Its total assets are almost five times total debt. Furthermore the company has very little long term debt.

PERIOD ENDING

31-Oct-09

31-Jul-09

30-Apr-09

31-Jan-09

Assets

Current Assets

Cash And Cash Equivalents

49,478

47,474

74,568

86,621

Short Term Investments

-

-

-

-

Net Receivables

105,469

76,689

66,110

76,710

Inventory

228,766

248,187

241,603

228,884

Other Current Assets

35,711

41,560

55,185

47,863

Total Current Assets

419,424

413,910

437,466

440,078

Long Term Investments

-

-

-

-

Property Plant and Equipment

58,142

60,920

62,903

66,749

Goodwill

-

-

-

-

Intangible Assets

-

-

-

-

Accumulated Amortization

-

-

-

-

Other Assets

28,648

24,502

31,357

57,163

Deferred Long Term Asset Charges

10,014

27,020

23,215

-

Total Assets

516,228

526,352

554,941

563,990

Liabilities

Current Liabilities

Accounts Payable

61,617

55,515

65,933

68,910

Short/Current Long Term Debt

-

-

65,000

65,000

Other Current Liabilities

-

-

-

-

Total Current Liabilities

61,617

55,515

130,933

133,910

Long Term Debt

24,910

40,000

-

-

Other Liabilities

20,763

20,190

19,975

22,459

Deferred Long Term Liability Charges

6,116

810

6,527

6,856

Minority Interest

1,970

-

1,855

1,805

Negative Goodwill

-

-

-

-

Total Liabilities

115,376

116,515

159,290

165,030

Movado, based on its latest quarter 10Q, is trading at slightly above its liquidation value:

In Millions:

Cash * 100% 50,000

Receivables * 80% 84,375

Inventory * 65% 148,698

Other current assets * 50% 17,856

PP/E and other long term Assets * 25% 9,666

Total 310,595

Minus Total liabilities 115,376

Total assets at

Liquidation value 299,219

Shares outstanding 24.57

Liquidation value

Per share 12.18

Movado closing price (Jan 10) 10.78

% trading below liquidation value 11.2%

Everyone has a different formula for liquidation value. For inventory I used 65% for its liquidation value. Inventory plays a big role here for Movado because a large percentage of their assets are inventory. I must note that most of their inventory is finished goods, which may have a higher value than raw materials or WIP. Therefore, it is possible a higher value should be assigned for the inventory, but to be conservative I am not using a higher value.

Below is the data from their recent 10-Q.

Inventories consist of the following (in thousands):

October 31,

2009

January 31,

2009

October 31,

2008

Finished goods

$

144,287

$

146,073

$

147,424

Component parts

63,104

81,423

79,322

Work-in-process

21,375

1,388

9,988

$

228,766

$

228,884

$

236,734

The company is also cheap on the basis of EPS. I never use TTM EPS, since I believe it I much more accurate to take an average of EPS over the past several years. Diluted EPS over the past three years is 1.69. Based on a current share price of 10.78 Movado is trading at a 6.4 EPS.

Movado is trading at 0.7 P/S, and 13.7 P/CF (3 yr average). The company has P/B of 0.6 (which should not be a surprised since they are trading below liquidation value).

Movado is expected to grow EPS at 12% per annum. I take this number with a grain of salt since forecasts are usually wrong. Even with no growth, the stock is priced cheap.

The company also has some qualitative measure that I will not put a value on but add to the attractiveness of the stock. Although most of the earnings come from the US, a large percentage comes from overseas. in 2009 38% of net sales came from overseas. This gives the company a diversified sales base overseas which is helpful with a weak domestic consumer.

Geographic Segment Data for the Three Months Ended October 31, 2009 and 2008 (in thousands):

Net Sales

Operating (Loss) Income (2)

2009

2008

2009

2008

United States

$

79,615

$

79,021

$

(4,883

)

$

3,595

International

49,351

56,825

7,822

11,025

Consolidated total

$

128,966

$

135,846

$

2,939

$

14,620

Finally, the company makes excellent watches that appeal to a variety of consumers. Its Tommy Hilfiger watches sell for as little as $40 and its Ebel watches sell for as much as $30,000.

The classic Movado watch has great brand recognition. A Movado watch can be spotted from far away due to its unique looking design. In addition, it makes high quality luxury watches for $1,000 that can compete with Rolexes that are several times the price. While I do not know a number of these qualitative aspects it is clear that this is a great company selling far below its intrinsic value.

Disclosure: Long movado

Source: Movado: A Quality Watchmaker on the Cheap