Handbags Are Nice, But LVMH’s Stock Looks Lush

Handbags Are Nice, But LVMH’s Stock Looks Lush
Luke Suddards

11 months ago2 mins

Luxury goods seller LVMH Moët Hennessy Louis Vuitton and its stock seem to always be turning heads. Over the past ten years, its shares have delivered a chunky 500% return for investors (dark blue line), easily outpacing the STOXX Europe 600 index (gray line) and the luxury sector in general (light blue line). With its 2022 full year earnings out after the close Thursday, it’s a nice time to take a look at the luxury stock.

After all, the company does seem to have a strong wind at its back right now: China, which makes up 15% of its sales, has loosened its Covid restrictions and reopened, unleashing a lot of pent-up consumer and travel demand. Analysts at Goldman Sachs are expecting that and other factors to give a boost to LVMH’s biggest product line, fashion and leather (73% of profits), forecasting 11.5% growth in 2023, considerably more than the 7.1% they previously forecast. And those estimates could prove to still be on the conservative side, since they’re factoring in a significant slowdown in European and US consumer purchases, which might not happen.

Goldman has a soft spot for LVMH: its leadership in luxury gives it a lot of pricing power and its scale of production keeps its costs low and its profit margins nice and fat. Plus, it’s got a cheaper valuation, compared to other luxury stocks (LVMH has a 16.3x enterprise value (EV)/earnings before interest and taxes (EBIT) compared to the peer group’s 18).

No stock is without risk though, and high-priced luxury products can seem like a tough sell when there are near-daily headlines about layoffs. Plus, there’s always the risk that travel disruptions and store closures could pop back up if there’s another dangerous resurgence of Covid. That said, Goldman’s got a 12-month price target of €900 ($980) for LVMH, which represents upside of 14% from its current price. Not bad. Instead of buying LVMH’s shiny bracelets, belts, and handbags, it might be worth buying their shares instead.

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