Do you like luxury goods? Many nouveaux riches from Asia don’t even need to be asked this question – a glance at the corresponding accessories reveals the answer. Chic bags, fashionable shoes, or flashing watches – those who can afford it like to show off what they’ve got. Now that the pandemic is in the home stretch, travel activity is also on the rise. With it, sales of luxury goods that have always been popular to buy while away from home. I took a closer look at LVMH(Louis Vuitton Moét Hennessy), the world’s largest luxury goods group. The LVMH Group (OTC:LVMUY) is one of the most attractive vanity stocks.
It produces and distributes wines & spirits (Hennessy, Pommery), fashion & leather goods (Louis Vuitton, Dior, Kenzo, Givenchy), perfumes & cosmetics (Dior, Guerlain), jewelry and watches (Tiffany, TAG Heuer, Bulgari). It also offers haute couture items through select boutiques, stores, and retail chains (Sephora, Le Bon Marche). So is the stock a buy?
Consumer Enthusiasm Returns
LVMH remains the benchmark in the luxury industry. Although the Group did not come through the 2020 pandemic year without scrapes (sales fell by 16.8% and profits by 34.4%), LVMH is benefiting disproportionately from the resurgence of consumer appetite for luxury goods. As a result, the share price has reached a new record high, making LVMH the most highly valued company in Europe and CEO Arnault briefly the richest man globally.
The background for the share price increase was the surprisingly strong start to the year. Driven by the markets in China and the USA, a new sales record of €13.9 billion was set in the 1st quarter. This represents a 32% increase year-on-year and an 8% increase compared to the 1st quarter of the pre-Corona year 2019. In addition, the Louis Vuitton and Dior brands were proving popular with luxury consumers and helped the leather goods division post a 37% increase over 2019.
Better still, wait and see!
Except for the retail division, which is suffering the most from the restrictions in global tourism, all other business segments also showed significant growth. The watch/jewelry division reported a 138% jump in sales due to the acquisition of Tiffany’s, which has made LVMH the global No. 1 in jewelry. Whether the high growth rate can be maintained over the year seems questionable.
The valuation level has risen sharply based on the P/E ratio and is significantly higher than before. Therefore, remain cautious with the share for the time being. However, weakness in the share price could offer opportunities. Also, the dividend yield is now only 0.9%. The stock just dropped more than 6% on Thursday.
So, the question is what to do now. I think we’ll add it to the Watchlist. But this stock can definitely run again in 2022 and beyond.
I’ll be back to talk about other opportunities like luxury brands once again on Friday.