Hermes rms And lvmh MC It is one of the world’s largest and most famous luxury companies. However, the property and stock performance of these two companies has diverged significantly over the past 18 months, with Hermès recently overtaking LVMH as the world’s largest luxury stock.
But are Hermes and LVMH better options for long-term investors looking for demand for luxury brands?
According to Morningstar Metric, Hermes is now in stock with a 1 star stock after recent stock market performance, while LVMH is a 4 star stock.
Major Morning Star Metrics for Hermes Stocks
LVMH shares lost 22% this year, nearly 40% at the level in May 2024. They are currently below estimates of the Morning Star Fair Value of 620 euros, around 500 euros. In other words, stocks are undervalued.
Key Morning Star Metrics for LVMH Stocks
Hermes and LVMH – Why did their stocks branch out?
Both luxury groups outperformed the wide range of markets before and after the pandemic, as many home-based consumers spent their savings on luxury goods, but performance has since gone in a variety of directions. Hermes stock has been better than LVMH since 2023. This is a pattern that became even more clear with the sudden decline in LVMH in 2024. The rise in economic uncertainty related to US tariff policy and the disappointing results of LVMH have amplified the slides since the beginning of the year.
The European luxury sector prides itself on its brands of fame, price rise, consistent organic growth and ability to carry on high profitability, but these attributes have been deteriorating recently. Cost-conscious consumers are sensitive to price increases in less certain economic conditions, affecting segment sales growth.
Fundamentals are divergent to both companies.
In both 2017 and 2018, LVMH recorded higher organic growth figures than Hermes. Since 2019, things have been reversed. The latest first quarter results show that Hermes sales increased by 7%, excluding the currency effect. And Christian Dior.
This change in financial performance is reflected in both Hermes and LVMH stock prices.
“For so long, LVMH has been Europe’s largest company, reflecting the diverse performance and investor sentiment towards the two companies,” says Morningstar analyst Jelena Sokorova.
Hermes replaced LVMH on April 15th as Europe’s most valuable luxury company by market capitalization.
Louis Vuitton expected to continue growing
Morningstar Sokolova says LVMH will not be affected by the slowdown in the sector, but with a portfolio of strong major brands in several gorgeous niches and a wide range of moats, she believes she is well set up to generate future profits.
Today, with 19x expected revenue, LVMH shares are undervalued, she says, but recently she has raised LVMH’s fair value estimate from 650 euros to 620 euros per share.
“In the long term, we expect the leather products sector to expand by 6% with an average margin of 40%,” Sokolova says. This is compared to 39.9% in 2022 and historically around 30%.
“Louis Vuitton expects to continue to continue the medium- to high single-digit revenue growth driven by the brand’s global appeal and pricing power, but other fashion and leather product brands should expand with the benefit of LVMH Group’s resources.”
The stock is currently trading at a Morningstar fair value estimate and a 21% valuation discount.
Hermes review premium
Hermes is in a very different situation than LVMH. The stock is trading at a large 56% valuation premium against MorningStar’s fair value estimate.
“The latter is resilient due to sector recession as LVMH is exposed to more ambitious consumers than Hermes. The wealthy consumers are more resilient,” Sokolova points out.
Besides benefiting from its wealthy clients, Hermes could even be a “safe haven” asset in the luxury sector in a time of wider economic turmoil.
“Hermes benefits from less pricing power than its competitors. Today, it can take advantage of the rising activity in the secondary market to drive sales. Finally, investors tend to evacuate to safe shelters, and Hermes is recognized as a safe asset in this sector.”
But Factset Consensus estimates that if you trade at 52 times the expected revenue, Sokolova says the stock is clearly overvalued.
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