LVMH Stock Unsuitable for Inflationary Conditions
Take a Glitzy Dip in LVMH's Luxurious Waters
Glide through the world of luxury, where economics takes a backseat and the art of French haute-couture reigns supreme – meet LVMH, the undisputed king of high-end delights.bell to 758 euros. Given the recent surge of 17 percent since June, you might wonder: Should you dive headfirst into this pristine pool of opportunities? Let's explore the glittering galaxy that is LVMH and decide if it's time to immerse yourself!
LVMH, the Empire of Glamour
LVMH stands tall as the global titan of luxury, boasting a whopping 75 brands (think Louis Vuitton, Christian Dior, and Sephora), 5,000 stores, and an unparalleled market dominance across 80 countries. The man behind the powerhouse? Bernard Arnault, the second-richest person on the planet, with a net worth of $150.7 billion (Forbes, 2022). A clever mix of pricing power, a knockout balance sheet, and an undisputed status as the industry leader ensures this empire remains unfazed, even amid the current economic storm.
Dancing with Inflation: LVMH's Economic Waltz
Inflation has set the world on fire, with rates in the US reaching 8.2% and Germany even climbing over 10%. As central banks worldwide tighten their belts and jack up interest rates, LVMH stands its ground, cool and collected. Just recently, the US Federal Reserve hiked the federal funds rate by 75 basis points, pushing it into a range of 3.75 - 4%. “No sweat,” murmurs LVMH, twirling effortlessly amidst the economic dance.
Glimpsing into LVMH's Mirror of Success
LVMH has shown off its muscular physique in its latest financial display, exceeding expectations in every business segment throughout the first half of the year. The group cleverly tweaked its prices at the beginning of the year, and bam! – sales grew 28 percent to 56.5 billion euros, with the fashion and leather goods segment, a star performer, recording above-average growth of 31 percent. Americains have even crossed the pond, eager to splash some cash in Europe, taking advantage of the dollar's strength. Although the Chinese market has been a challenge due to lockdowns, experts predict the market to heat up now that restrictions are easing.
Invest in LVMH: Timing Couldn't Be More Perfect
For the whole fiscal year, LVMH aims to keep the ball rolling. Analysts predict a growth of over 20 percent in both revenue and earnings per share. But why, then, is the stock priced at 630 euros, a far cry from its epic high of 758 euros achieved earlier this year? Despite its sparkling performance, LVMH has been edged down by 14 percent since the beginning of the year.
LVMH's Resilient Recovery: A Well-Dressed Phoenix
LVMH has demonstrated its ability to bounce back stronger than ever, particularly during tough times. Case in point: shortly after the 2009 financial crisis, the company recorded a 19 percent increase in revenue and a whopping 30 percent boost in earnings per share in 2010.
So, Is LVMH a Buy?
LVMH's stock currently trades at around 20 times its expected earnings for the current fiscal year, below the average price-to-earnings ratio of about 24 over the past 13 years. Luckily, despite a few economic curbs, the stock is undervalued and, based on historical trends, poised for a swift recovery.
Insight: The LVMH Advantage In contrast to many companies that suffer in turbulent economic waters, LVMH boasts an exclusive advantage—its high-end focus. This niche strategy has enabled it to weather challenging conditions, specifically by targeting less-price-sensitive customers who are less vulnerable to inflation and rate increases.
Insight: The LVMH Advantage
Being a luxury brand poses several unique advantages when it comes to managing the impact of economic crises. By focusing on high-end clients, LVMH effectively shifts its attention away from the less price-sensitive buyers who are vulnerable to inflation and interest rate increases. This strategy has enabled the company to navigate difficult economic conditions more effectively and sustain its growth trajectory.
- Bernard Arnault, the second-richest person on the planet, leads LVMH, a luxury empire with 75 brands, 5,000 stores, and an unparalleled market dominance.
- Despite a global economic storm, LVMH has shown resilience, with sales growing 28 percent to 56.5 billion euros in the first half of the year.
- LVMH's stock is currently undervalued, trading at around 20 times its expected earnings for the current fiscal year, below its average price-to-earnings ratio of about 24 over the past 13 years.
- By targeting high-end clients who are less vulnerable to inflation and interest rate increases, LVMH is able to navigate difficult economic conditions more effectively and sustain its growth trajectory.
