Hour Glass Ltd’s Stock Is Down By 17% In The Last 12 Months: Here’s Why

Hour Glass Ltd (SGX: AGS) is in the business of luxury watch retail. It has a network of 40 boutiques in Singapore, Malaysia, Thailand, Japan, Hong Kong, and Australia. Its stores carry some of the world’s finest watch brands, such as Audemars Piguet, Cartier, Hublot, IWC, Patek Philippe, TAG Heuer and more.

Over the last 12 months, Hour Glass’s stock price has declined by 17%. What may have caused this?

Reasons for a decline

There can be many reasons behind a stock’s price decline.

But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related. The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with Hour Glass

In Hour Glass’s case, I believe both factors were at work.

Firstly, let’s see how the business performance of Hour Glass had contributed to the decline in its share price. Here’s a table showing some of the important items from the company’s income statement for its FY2017 (fiscal year ended 31 March 2017) and FY2016:

Source: Hour Glass’s earnings release

We can see that the company’s revenue and profit after tax had declined by 2% and 7%, respectively. So, it’s clear that the luxury watch retailer had produced weaker business results.

Yet, the 17% decline in Hour Glass’s stock price is over twice the magnitude of its profit decline.

This can only be explained by an increase in negative sentiment that investors have for the company. It’s also worth noting that investors may be spooked by market conditions in the luxury watch retail business, such as excess inventory and subdued consumer demand for luxury watches.

Looking ahead, investors may want to think about whether the currently weak consumer demand for luxury watches is cyclical or secular in nature.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.