The table scores globally listed luxury brands using financial metrics The Edge Singapore considers important for quantitative analysis. These eight companies are bellwether names in the luxury industry and are assessed using the following quantitative aspects:
- Historical performance, which looks at the company’s historical financials over the past 10 years or since inception, where discounts are given for poor performance and inconsistency;
- Profitability, which looks at profitability ratios such as return on equity, return on assets and margins;
- Yields and valuation, which compares the company’s fundamental yields against the risk-free rate and its relative valuation to peers;
- Financial safety, which examines the company’s balance sheet, comprising liquidity and solvency ratios, the quality of its shareholder equity, and any external credit rating on the company;
- Sentiment, which looks at analyst ratings and forward price ratios on the company;
- Price-to-value analysis, which compares price growth to weighted value growth over multiple periods. This weighted value includes revenue, net income and cash flows in ascending order.
Based on our purely quantitative scoring table, Paris-listed LVMH Moët Hennessy Louis Vuitton and Italiana-listed Moncler are the most undervalued. Although recent results and sentiment show slowing demand for luxury goods in certain geographic regions, The Edge Singapore believes these two stocks are attractive at current prices after incorporating valuation discounts for industry headwinds.
Apart from having solid fundamentals, both companies scored highly for the price-to-value analysis. For example, although LVMH’s one-year and three-year share price CAGR was negative to low single digits, the growth in revenue, net income, operating cash flow and free cash flow was significantly higher over the same period.
Similarly, Moncler’s growth in the value metrics was considerably much higher than its share price CAGR over comparable periods. Further, we think that the financial health of both companies are great, with current ratios above 1, Altman Z-scores above 3, interest cover of over 20 times and credit ratings higher than average peers.
See also: Bulgari CEO sees China luxury market recovering in next two years
Disclaimer: This article is for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This article does not take into account an investor’s particular financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor's own discretion and/or after consulting licensed investment professionals, at their own risk.
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