The stock of LVMH Moet Hennessy Louis Vuitton SE (OTCPK:LVMHF, 30-year Financials) appears 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 $759.85 per share and the market cap of $379.8 billion, LVMH Moet Hennessy Louis Vuitton SE stock shows every sign of being significantly overvalued. GF Value for LVMH Moet Hennessy Louis Vuitton SE is shown in the chart below.
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 8.56% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. LVMH Moet Hennessy Louis Vuitton SE has a cash-to-debt ratio of 0.55, which which ranks in the middle range of the companies in the industry of Retail - Cyclical. The overall financial strength of LVMH Moet Hennessy Louis Vuitton SE is 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:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. LVMH Moet Hennessy Louis Vuitton SE has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $52.6 billion and earnings of $11.244 a share. Its operating margin of 18.59% better than 94% of the companies in the industry of Retail - Cyclical. Overall, GuruFocus ranks LVMH Moet Hennessy Louis Vuitton SE's profitability as strong. This is the revenue and net income of LVMH Moet Hennessy Louis Vuitton SE over the past years:
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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth 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 way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. 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 4.87. The historical ROIC vs WACC comparison of LVMH Moet Hennessy Louis Vuitton SE is shown below:
In closing, the stock of LVMH Moet Hennessy Louis Vuitton SE (OTCPK:LVMHF, 30-year Financials) is estimated to be 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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