LVHM Stock Investing Analysis + Intrinsic Value

Duration: 10:46 1478 transcript words EN summary

Video summary

The video provides a comprehensive analysis of Louis Vuitton's parent company, LVMH, focusing on its current market position and the factors driving its recent significant decline. The stock has dropped by approximately 53% from its previous highs, a move that many investors view as an opportunity to double their money if the company returns to its former valuation levels. This downturn is largely attributed to a slowdown in luxury spending and rising interest rates, which have dampened consumer enthusiasm for high-end goods like Gucci and Tiffany's. The presenter notes that while the business remains fundamentally strong with great margins, low debt, and robust cash flow generation, the market sentiment has shifted negatively due to uncertainty about whether the post-pandemic boom in luxury consumption will sustain itself or revert to more normal levels. A key argument presented is the relationship between earnings growth and the company's price-to-earnings (P/E) ratio, which currently sits at multi-decade lows. Historically, when LVMH experienced strong growth, its P/E ratio would expand to around 30, whereas a lack of growth sees it contract to between 10 and 15. The intrinsic value of the stock is heavily dependent on future growth rates; if the company can achieve a growth rate of 7% or higher, it could be considered undervalued, offering significant upside potential. Conversely, if growth slows to around 4-5%, the stock would be fairly priced for a modest long-term return, but investors must decide if they are comfortable with the current dividend yield alone without expecting substantial capital appreciation. The analysis highlights that while the company has returned billions to shareholders through dividends and buybacks, its future valuation is still tethered to the health of global luxury retail, particularly in key markets like China. The transcript concludes by emphasizing the high-risk nature of investing in LVMH at these levels, as the outcome hinges entirely on whether the luxury market recovers or continues to struggle. If the current economic exuberance and spending habits persist, there is a clear path for the stock to double within a few years, potentially delivering returns of 10% to 20% annually. However, if a crisis hits or consumer sentiment remains weak, the stock could easily halve in value, limiting upside potential even further. The presenter advises that while the downside risk is contained by the dividend yield and low valuation metrics, the investment carries significant uncertainty regarding future spending trends. Ultimately, the video suggests that LVMH is currently fairly priced but represents a high-risk opportunity where investors must be prepared for volatility, making it suitable only for those who can handle the possibility of both substantial gains and severe losses depending on how the luxury sector evolves over the next few years.

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a lot of requests over time for Louis Vuitton stock. Let's check it. When there are a lot of requests, it's usually because the stock is down significantly from previous highs and everybody wants just to quickly double their money if this returns to the previous highs. In this video, we're going to discuss the chances for that to happen. That can always happen. Bear that in mind. The P ratio is at multi-deade lows. Every time it was this low, it was a great time to buy a company like this. If we look at the business, the luxury retailer, so they have a little bit of everything. This is H1 sales, 2 and a half billion, likely more as the second part of the year comes in. Wine and spirits. Fortunately, I don't drink alcohol, so I don't know any of these brands. Then we have fashion and leather goods. Core of the business. Louis Vuitton, Christian Dior, and all the other brands there. Perfumes, cosmetics, watches and jewelry. They acquired Tiffany's just a while ago, Bulgari, and all the other brands that you see whenever you visit a bigger city. The retail street is practically mostly LVMH. Some other cheaper retailing, Sephora, Lebo Marsh, things like that. And the key factor for this business is retail on the streets. If we go and look at the whole business, they say the revenue is accelerating growth in Q2. And that is the key factor when it comes to investing. If they return to growth, the P ratio returns to 30. No growth, P ratio 10 to 15. But if there is any sign of return to growth, earnings improve, the valuation improves and you double your money. Well diversified across the world and it all depends on how the luxury spending will go. Great margins, nothing wrong there. Good net profits despite the uncertain times. Good cash flow generation, no debt practically. So very low to the equity even if we can discuss the true value of the equity. But okay, let's discuss the evolution of the financials. Of course, it was a growth stock. This is almost 4x over a little bit more than a decade. And it was priced for that stability, great profits. Profits were 5x over these 12 years. So when it comes to such a business, it is priced. So however, everything changed a little bit after 2023 and that was also the peak of the stock that is now significantly lower, 53% lower. However, if we look at the situation there, we see here and there a big acquisition, but most of the money is returned through dividends and repurchases, but there is also significant capital expenditure around 8 billion return to shareholders. So, what's next for investing in the company? All these brands will depend on spending. But for investors, if net income goes up to 13 billion, P ratio goes to 30, there you have it. You have a quick return to where we were before. Perhaps even 400 to 650, you make your return. Any kind of growth, this stock is 50% up. However, if we look at what the analysts are saying, they are waiting for a recovery in luxury spending and questioning whether that recovery will actually arrive. Luxury was so luxurious in the stock market that there is also an index of European luxury. That is crazy. And we discussed as Luxotica recently in a quick short but also there is now softer momentum in the luxury sector and that's why the stock is down. If there is any reversal there you make your money. So this is always the question when it is better to buy a stock when the momentum is weaker and things look ugly and the stock price is half of what it was or when everything looks good. And of course analysts are always citing limited visibility into the luxury retailers for the second half of the year. But if in three years things improve and this starts to go up, you make your money, you make 50%. Let's say in year two that's plus 20% return on investment per year. We need to know the market for the next year or two to see whether spending on luxury things will go up. Unfortunately, interest rates are going up which means that the excesses that we have enjoyed the last 10ish 15 years might revert. higher interest rates, less gambling, less money, less Gucci smoochi for the bimbos of all these great entrepreneurs that are just betting on the interest rate spread. So that luxury situation might revert less Tiffany, less champagne. And then the question when it comes to investing is okay, what if the growth happens? But also the question is what if the growth doesn't happen? Am I happy with what is there already? If the grow doesn't happen, if we look at earnings per share peaking at 30, now at 20, but you have to ask yourself, am I happy with the 3.25% dividend yield? And then we can also check what happens if things change. And then I looked a little bit at the P ratios 10 years ago when it was a little bit the weaker situation. China spending this the world was not a nice place European crisis things like that and the P ratio was around 18 if I'm not mistaken the question is can the P ratio go to 13 that would be something happening in a true crisis and then the market cap would be 100 billion so here we have our intrinsic table LVMH just click here and here we have the valuation now earnings per share €22. If there is a growth rate of just 5% P ratio of 20, the intrinsic value is around the current stock price priced for a return of 8% over the long term. If the company grows faster at 7% P ratio goes higher, then we are already undervalued. But if the growth returns to let's say 10% in the first 5 years, calculate perhaps even let's say 35 * 25 is your return in the let's say 4 year period. 35 * 25 around 7 800 you double your money if the company returns to growth over the next four years. So whenever they return to growth the P ratio will go up and then you make your money from a value investing perspective if the P ratio goes to 15 maybe bit little bit more conservative 12 just 4% growth going forward we are there the stock is priced let's say fairly priced for a 10% return but you have to always calculate the worst case scenario if there is a risk if there is a huge crisis then luxury brands will suffer and that is simply how it goes. Can we predict these things very hard on our comparative table priced for a 9% return? So we have a few of them 10 cent ahold visa depending on what kind of estimations you put in Netflix into it. So priced like some of the other players there perhaps even Amazon the most intelligent thing we can discuss is can go up can go down. We surely cannot predict the luxury market in the next 6 months. It looks ugly now but the key question is are you happy with the dividend? If you are, you have to see, okay, if the stock goes down, this is my downside. What's my upside? All the fashion industry looks ugly. Now, we discussed Lululemon recently. We discussed other sportsware companies. So, my conclusion is this is fairly priced in this market. If the market changes can get very ugly, then the upside is very limited. The dividend yield is relatively low. And for me personally, other is better. From a current perspective, I would put LVMH here as a highly risk low return. But yes, if the growth returns, then you will quickly make 10 to 15 20% per year. But that is with a big if. So if you want something more aggressive in your portfolio, if all things are great ahead, if all these AI companies start cashing in and all those guys start spending on Gucci smooches, then you can make your money. If not, it is a pretty risky situation. And that's the simple truth. No analyst knows, nobody knows where the company will go from. Now there is potential for upside. If this exuberant market, this bull market in the economy spending, this unsustainable growth continues, there is good upside in the next few years, this stock can easily double. If the ugly continues, if we have a crisis, this stock can easily half. And if you can't handle that truth, then you should not touch