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LVMH: A Promising Investment Amidst Recent Sell-Offs (Rating Upgrade)

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The Luxury Segment: Overcoming Market Challenges

As the financial markets continue to face significant challenges in recent months, it is no surprise that the luxury segment has been particularly affected. The increase in interest rates, both in the US and Europe, along with China’s economic slowdown, has led to concerns about consumers cutting back on spending. This has resulted in luxury giants like LVMH (OTCPK:LVMHF) (OTCPK:LVMUY) experiencing a substantial decline in stock prices.

While the luxury segment has seen a decline of 19.7% in the past three months, compared to the S&P 500 Index’s 4.3% decline, it is essential to recognize the long-term potential of companies like LVMH.

Investment Thesis: LVMH as a Smart Opportunity

Despite the recent sell-off, there are several reasons why LVMH stands as an attractive investment opportunity:

  • LVMH remains Europe’s pinnacle of quality, with excellent management, a robust competitive advantage, and an iconic brand presence that promises a thriving future.
  • LVMH’s stock has experienced a significant drop, making the valuation even more appealing for long-term investors.
  • LVMH’s stable of luxury brands, including Louis Vuitton, Dior, and Tiffany & Co., solidifies its enduring power and potential for sustained growth.

Additionally, considering LVMH’s strong brand image and emotional connection with consumers, the impact of the economic challenges in China might be somewhat exaggerated, especially in relation to luxury retailers. Furthermore, Bank of America views luxury retailers, including LVMH, as a potentially wise investment despite the current concerns.

Valuation: LVMH Trading at a Discount

LVMH’s stock price decline has resulted in a more attractive valuation for investors. The company’s PE ratio has dropped to 22.2x FY23 earnings, aligning with the 20% decrease in stock price.

Furthermore, the fair value estimate for LVMH is approximately €928, representing a substantial 22.6% discount from the current market price of €718. This undervaluation, coupled with LVMH’s exceptional quality, makes it a bargain.

Game Plan and Conclusion

Despite the recent market turbulence, LVMH offers a compelling investment opportunity. The company’s strong competitive advantages, heritage brands, and skilled management team position it as Europe’s top-tier company.

As an investor, it is important to identify buying opportunities during market downturns. Currently priced at around €718, LVMH’s stock represents a significant 19% discount according to analysis. While it is advisable to exercise caution and monitor the market, expanding one’s stake in LVMH at €650 and €600 may present an attractive opportunity for additional investment.

Note: This article discusses securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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