About LVMH
It’s not everyday your friend comes from out of town to eat chicken wings, rent a kayak near downtown Austin, Texas, take a trip out to one of Austin’s more prominent malls, take a stroll down some of the malls swankier stores, including but not limited to a Nespresso shop, a Gucci store as well as a Louis Vuitton shop along with a Tiffany & Co. where we absolutely and unapologetically stood out like sore thumbs, being the far from fancy individuals that we are.
But some days this does happen.
Trust me.
While we did stick out a Tiffany & Co., a major shout-out is in order for the store custodians (our fanciest way of saying employees within the store) as they hardly treated us differently from the fancier folks that peruse its store daily, being nothing but kind to us, offering us glass Evian bottles of water and informed us that if we had any questions to not hesitate to ask, even though they pretty much knew we weren’t going to actually make any purchases, as a single handbag from their store could very well have put an insurmountable dent in our bank accounts combined.
While the adventures didn’t end there, the staff’s hospitality made me feel inclined to do some digging behind Tiffany & Co.
Oh, and, as a result, I found out that, Louis Vuitton, Bulgari, Fendi, Christian Dior, Sephora, Celine, Givenchy (phonetically, “zhu-vahn-shee,” if you want to sound all fancy and whatnot) you know, some of the other brands (yes, along with Tiffany) are actually owned by the French fashion conglomerate of discussion today, founded by who else but French billionaire Bernard Arnault.
They are like McLean, Virginia-headquartered Mars Incorporated in that they are both family owned and among the most influential, brand-heavy and noticeable companies in the world.
Candy and diamonds, it’s all really the same thing.
At any rate, we don’t really even feel the need to further note that these brands are among the most prominent, dominant and well known fashion houses of all time, because you probably already knew that.
Let’s spare ourselves some time, shall we?
One thing we will say, however, regarding the high-fashion industry is that we do have our suspicions that it is quite resistant to recessionary pressures, as largely irrespective of the state of the economy, the wealthy can still afford to splurge on some new fashion items and even some of the less affluent practically fiend after these company’s brands and their associated products, obviously boding well for LVMH as it relates to thwarting recessionary pressures.
Additionally, it doesn’t hurt to constantly have influencers and celebrities talking about or merely referencing these brands and their products, which we seriously think is a highly impactful de facto marketing strategy for a consumer apparel conglomerate such as this one.
All of this being said, as they say in France, it is better to let the numbers speak for themselves (pretty sure they don’t actually say that in France, but let’s just go with it) and let’s gain some more familiarity with this company, its finances and whether or not we would consider it an investment worth pondering.
Que les jeux commencent (“let the games begin”).
LVMH’s stock financials
As one might’ve probably guessed, LVMH is a gigantic company, which is validated by its present market capitalization of $422.25 billion, which doesn’t really mean all that much in the grand scheme of things other than it is a highly valuable brand in and of itself, which is simply something we already knew.
It’s also important to note that its shares (OTCM: LVMUY) are presently trading at a price of $159.17 and it also has an associated price-to-earnings (P/E) ratio of 22.72 along with a current annual dividend of $2.60.
In considering these pieces of preliminary information, LVMH’s stock (OTCM: LVMUY) seems to be trading at a valuation just a tad above fair value given that a price-to-earnings ratio of 20 is usually said to indicate that a stock is trading at fair value and thus anything greater than 20 hints at the fact that this company’s stock and valuation are just a smidge ahead of themselves (i.e., the stock is overvalued), that is, if there hasn’t been any meaningful growth coming out of this company through its revenues or if there aren’t any major growth opportunities likely to sprout out of this company in the near future.
In these cases, it still might be worth overpaying just a touch for an ownership stake in LVMH, given its sheer global fashion brand prowess and given that, we, at least, view high-fashion as being relatively well insulated from greater overall recessionary pressures.
Time will ultimately tell, of course.
But for right now, a dividend hardly ever hurts (especially when it is more than likely secured by the well scaled company in question) and a slight overvaluation isn’t going to make us call it quits this early on in the game.
LVMH’s executives are tasked with tending to and managing around $134.6 billion in terms of total assets as well as approximately $79.5 billion in terms of total liabilities, which is plainly a great overall balance sheet structure, all things considered, particularly as one accounts for the fact that this company holds, puts together and ships a lot of inventory worldwide but even then it has managed to keep its balance sheet lean and total asset-heavy, giving us confidence that it will be able to push through any ordinary recessionary headwinds that may trounce its way.
With respect to the conglomerate’s revenues over the last handful of years, LVMH’s total annual revenues since 2018 have seen their fair share of general fluctuation, however, for the most part, the company’s revenues have been trending in the right direction, as they started off at just about $46.8 billion in 2018 and have been most recently reported (or at least displayed on TD Ameritrade’s platform) as $79.1 billion, as reported in 2022.
Yes, COVID-19 did soften this company’s revenues, but not by as much as one might’ve expected, as it dropped only about 16%, whereas it could’ve most certainly dropped much lower, had it perhaps not been for the conglomerate’s strong brand power and price inelastic consumers, or maybe if it didn’t pivot as successfully as it did digitally prior to and during this era.
Onto the state of the company’s cash flow statement, both LVMH’s net income and total cash from operations have been positive and consistent, which we were definitely expecting coming from a company with the market share and execution this one maintains, and, with that, we presume that this company’s margins, specifically its trailing twelve month (TTM) net profit margin is well off in comparison to the industry’s respective average.
Let’s check!
LVMH’s stock fundamentals
According to the figures displayed on TD Ameritrade’s platform, LVMH’s TTM net profit margin is pegged at 19.73% to the industry’s listed average of 9.47%, which isn’t all that competitive, evidently.
This is more than likely simply a byproduct of LVMH’s market share and global brand awareness among the masses and with that, perhaps it can charge a bit of an extra premium on the goods and products it sells because, hey, its Bulgari, shouldn’t it cost an arm and a leg?
In addition to these factors, it is also probably the case that LVMH has a well optimized, efficient supply chain that allows it to keep expenses on the lower end and thus allow for its profits to be a bit taller and more fashionable.
As it relates to the company’s TTM returns on assets and investment(s), also according to the figures displayed on TD Ameritrade’s platform, LVMH once again has found itself in a more competitive state with respect to the competition (again, on average), as, for instance, its TTM return on assets are perched at 12.35%, narrowly missing the industry’s listed average of 12.52%, which makes a fair bit of sense given that this global fashion conglomerate plays against some very well known brands and conglomerates as well, including but not limited to Gucci, Armani and the parent company of Cartier, Richemont.
A lot of rather stiff competition can naturally lead to core return metrics being neck and neck, which we don’t have any problem with so long as LVMH remains competitive on these fronts in the years, decades and centuries to come, which we frankly have little to no doubt that it will.
Should you buy LVMH stock?
When it comes to having brand power, LVMH has it down to a science.
When it comes to its stock (OTCM: LVMUY) being fairly valued, it’s almost there but objectively just not.
Nevertheless, it has proven itself (in more ways than one) to operate a business that is fairly immune to inflationary and recessionary pressures (among others) given its target consumer profile, the fact that its balance sheet is in great form, its cash flow is, as they might say in France, “fleuxing,” (sorry, France, that was a leaux bleux), its revenues have been trending in the right direction and its TTM net profit margin is more than competitive with respect to the industry, on average.
In putting together all of these factors, we deem it most appropriate to give LVMH’s stock a “hold” rating strictly due to its already established market share and relatively muted growth prospects (at least, from our vantage point), as we simply just don’t feel as though this company’s stock (OTCM: LVMUY) is worth paying any sort of premium for at the moment, especially with valuations across the board creeping back up.
Merci.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.