LVMH Moet Hennessy Louis Vuitton SE Stock Gives Every Indication Of Being Significantly Overvalued

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Apr 05, 2021
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The stock of LVMH Moet Hennessy Louis Vuitton SE (OTCPK:LVMUY, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $135.5 per share and the market cap of $341.2 billion, LVMH Moet Hennessy Louis Vuitton SE stock is believed to be significantly overvalued. GF Value for LVMH Moet Hennessy Louis Vuitton SE is shown in the chart below.

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Because LVMH Moet Hennessy Louis Vuitton SE is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 1.6% over the past three years and is estimated to grow 7.35% annually over the next three to five years.

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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. LVMH Moet Hennessy Louis Vuitton SE has a cash-to-debt ratio of 0.55, which is in the middle range of the companies in the industry of Retail - Cyclical. GuruFocus ranks the overall financial strength of LVMH Moet Hennessy Louis Vuitton SE at 5 out of 10, which indicates that the financial strength of LVMH Moet Hennessy Louis Vuitton SE is fair. This is the debt and cash of LVMH Moet Hennessy Louis Vuitton SE over the past years:

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It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. LVMH Moet Hennessy Louis Vuitton SE has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $52.6 billion and earnings of $2.249 a share. Its operating margin is 18.59%, which ranks better than 94% of the companies in the industry of Retail - Cyclical. Overall, GuruFocus ranks the profitability of LVMH Moet Hennessy Louis Vuitton SE at 8 out of 10, which indicates strong profitability. This is the revenue and net income of LVMH Moet Hennessy Louis Vuitton SE over the past years:

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Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of LVMH Moet Hennessy Louis Vuitton SE is 1.6%, which ranks in the middle range of the companies in the industry of Retail - Cyclical. The 3-year average EBITDA growth rate is 9.1%, which ranks in the middle range of the companies in the industry of Retail - Cyclical.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, LVMH Moet Hennessy Louis Vuitton SE's return on invested capital is 6.45, and its cost of capital is 4.84. The historical ROIC vs WACC comparison of LVMH Moet Hennessy Louis Vuitton SE is shown below:

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To conclude, the stock of LVMH Moet Hennessy Louis Vuitton SE (OTCPK:LVMUY, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Retail - Cyclical. To learn more about LVMH Moet Hennessy Louis Vuitton SE stock, you can check out its 30-year Financials here.

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