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LVMH (Moet Hennesy Louis Vuitton) is down over 33% from it’s highs & it looks like the party could be over. Or is everyone leaving just as things are about to get good?

At this valuation, I think it’s like finding designer clothes in your local charity shop.

Don’t believe me? Let’s unpack what’s been happening. 👇

LVMH is the luxury goods giant. High-end fashion, handbags, perfume & even champagne. Name something you’ve seen on your favourite Instagram influencer’s latest reel & LVMH probably made it.

But just because they’re high-end doesn’t make them immune to feeling the bumps in the road. They’ve had a few lately.

1/ Earnings Miss - Last earnings was a miss on revenue targets. Analysts had them down for €21.60 billion but the scorecard read €20.98 billion. That leaves then about €620 million short. Not catastrophic but definitely enough to get some raised eyebrows. There’s more to this than what meets the eye. I’ll get into it later…

2/ Global Headwinds - Most companies under performing right now are pointing the finger at the global economy. And to be fair to them, they are right to shift some of the blame to it. There’s been slower economic growth in key markets like the U.S. & Asia, which are both HUGE for luxury brands.

Higher rates & inflation have also been chipping away at consumer spending power.

Less spending power = Less Louis Vuitton.

But we should be at the tail end of these pressures with rates coming down & inflation under control…

3/ Stock Down - A 33% drop over 6 months is pretty significant. Some times a drop that fast can become self fulfilling if investors aren’t paying close attention. They just panic sell because price is falling, which makes the prices fall more which makes investors panic sell…. you see where I’m going with this?

That can keep happening until price finds a spot that is just criminally undervalued. I think we might be somewhere around that now. LVMH hasn’t been trading at a price-to-earnings multiple this good in a while.

Now that’s the bad news so why do I think it’s a strong buy?

LVMH’s troubles are only skin deep. Business remains solid & blemish free where it matters. Let’s look at what’s going right for them. 💪

This is their bread & butter. Fashion makes up more of LVMH’s bottom line than any other division. Revenue from this group was down 2% year-over-year.

Wait…what? Shouldn’t a 2% decline in their largest division be in the “Struggle” section?

Let’s look a little closer.

While revenue was down, organic growth was up 1% & it’s a better measure of how they’re doing. Why?

Because revenue refers to the overall sales. It’s everything that contributes to the bottom line. That means currency fluctuations, acquisitions & everything in between affects that number.

Remember, LVMH operates globally & reports it’s earnings in euros. When the currencies in it’s biggest earning regions like the US & Asia, weaken against the euro like they have been, revenue from those regions is lower when converted back to euros even if they sell more.

In fact, LVMH management have explicitly blamed exchange rate fluctuations for the revenue & earnings misses

Organic growth strips away all the noise like currency exchange rates & just answers the question - “Did we sell more than we did last year?”

The answer to that question is “Yes”.

As an investor, I like that. It means even with all the economic craziness, people are still buying Louis Vuitton bags & Christian Dior’s collections.

This division is growing like a weed. Revenue up 3% & organic growth was up 6% so no need to make excuses here.

Dior Sauvage is still a top-selling fragrance globally. If you’ve seen those Johnny Depp ads, you know this cologne isn’t going anywhere anytime soon.

And Guerlain are pushing growth with fragrance & cosmetic innovations, especially their high-end lines.

In short, LVMH is doing just fine in the beauty space. They’ve proved that when it comes to self-care, people are willing to spend on smelly water even in tough times.

Another win-win in Selective Retailing (AKA high end retail stores). Revenue was up 3% & up 8% organically, This division includes Sephora, one of the most recognizable beauty retailers in the world. If you don’t know it, a woman in your life will. Sephora is gaining market share, & LVMH is doubling down on what works.

DFS duty-free stores are under this division too & struggling since international travel hasn't fully bounced back to pre-pandemic levels. Sephora is like the kid who does everyone’s work in the group project because it more than offsets DFS’s struggles.

Like any space, if there’s no innovation you’ll eventually get left behind. That’s not the story here. LVMH isn’t just relying on existing brands to carry them forward. They’re bringing in new lines to drive future growth.

Beyoncé’s Whiskey: SirDavis 🥃- Yep, that’s right. Beyonce’s going from “all the single ladies” to “all the functioning alcoholics”. LVMH is teaming up with Beyoncé on a whiskey line called SirDavis. Not seen it before? Check it out here.

Given the Beyoncé hype, this should open up a whole new lane for LVMH in the U.S. whiskey market. It’s priced at $89 a bottle & expected to fly off the shelves

Sarah Burton at Givenchy 👗- In another power move, they’ve just hired a legendary designer who led Alexander McQueen’s success - Sarah Burton. She’ll be coming in as the new creative director at Givenchy.

Givenchy’s been missing a creative leader since the beginning of the year so landing Sarah Burton is a big win. She’s got a proven track record of growing a brand so expect Givenchy to soar under her leadership.

You’ve got the context now let’s talk the numbers.

LVMH’s current valuation is super low. The last time LVMH traded at a Price-to-earnings ratio (PE ratio) this low was October last year. You know what happened then?

The stock rallied over 30%. I think we’re set to do it all over again.

Current PE ratio sits at around 21. The 5 year average is closer to 28.

That means that if LVMH’s profits remain steady (or even take a bit of a dip) & investors start valuing them closer to their 5 year average, you’re looking at over 34% upside!

And if it reclaims recent highs, you’ll be closer to a 50% gain! 🤯

With so much upside & even more potential for growth now that rate cuts are coming, I’m in.

Dividend yield is currently at 2.2% which is always a nice bonus to have.

LVMH currently makes up just shy of 1% of my portfolio & I’ll be scaling in & looking to double this position size in the next couple of weeks.

First price target will be $790 before eyeing up new highs. Might even treat myself to one of their products if all goes well….

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