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Mark Yu
Mark Yu
Articles (412)  | Author's Website |

An Investor's Look at Some of the World’s Luxury Brands

Louis Vuitton and Hermes lead the way, while Gucci owner Kering has slowly lost its upward pace

Investors in luxury bag makers Louis Vuitton (OTCPK:LVMUY) and Hermes (OTCPK:HESAY) could not have cared less that the stock market was in disarray this summer as the U.S.-China tariff trade war escalated, because both of the stocks' prices reached all-time highs. Gucci owner Kering (OTCPK:PPRUY), meanwhile, has recently become less appreciated.

Louis Vuitton handily beat market expectations for its recent quarter, while Hermes just notched its highest revenue growth in the past four years. Kering missed estimates but still delivered a healthy 12.7% comparable sales increase for its recent quarter.

The largest of the group, Louis Vuitton — now valued at $211 billion — has led its peers after climbing nearly 50% so far this year, while Hermes ranked next after rising 29%. Kering followed with a weak 5% return.

Analysts have voiced concerns about Kering’s Gucci brand slowdown givenn that the brand makes up more than half of its revenue. In 2018, Gucci contributed 63% of Kering’s sales followed by Saint Laurent at 13%. This fear of slowdown is exclusive to Kering, as both Louis Vuitton and Hermes trampled expectations earlier on.

Despite their contrasting performance, both Louis Vuitton and Kering trade at 28 times their trailing earnings while Hermes stood out as the most overvalued in the group and has recently traded at 49 times its earnings.

Meanwhile, there seem to be no red flags in any of three’s balance sheets. Each demonstrated a healthy level of cash and equity, with almost negligible debt for Hermes.

Among the three, Louis Vuitton seems the most promising. Aside from being the largest and having wide array of brands in its portfolio, the company also operates a stand-alone cosmetic retailer, Sephora, which somewhat resembles Ulta Beaty (NASDAQ:ULTA) but focuses more on retailing luxury-brand makeup compared to the latter.

Given the backdrop of a steady pace of growth among the luxury bag makers, it may be prudent to wait for a good pull back from their stocks' recent highs before investing in their shares. Shares of this luxury group did not escape the market trepidation of late 2018 and were discounted 20-30% before bouncing back up this year.

Disclosure: Long Louis Vuitton and Ulta.

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About the author:

Mark Yu
I'm a doctor in physical therapy (DPT) with a passion for finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

I attempt to dissect one company filing every day. I dislike goodwill and intangible assets.

One company (review) a day keeps the speculation (hopefully) away.

"The only source of knowledge is experience."

"I have no special talent. I am only passionately curious." - Albert Einstein

"To strive, to seek, to find, and not to yield." - Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." - Warren Buffett

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