The S&P 500 Luxury Goods Index has experienced a torrid start to the year, falling by nearly 5%. However, I wouldn’t be worried about my luxury goods stocks if I were you.
Luxury products are what are called veblen goods. Given the consistent spending power of their end markets, veblen goods possess the latitude to perform throughout the economic cycle. Sure, a horrific economic downturn will likely detract from luxury goods sales. However, luxury goods sales will be unencumbered by typical troughs in the business cycle. Moreover, most luxury goods companies are mature by nature, meaning their dividend distributions are compelling, to say the least.
With the aforementioned in mind, I collated three luxury retail stocks for your consideration. Let’s discuss the salient features of each.
LVMH Moët Hennessy (LVMHF)
LVMHF (OTCMKTS:LVMHF) stock has delivered a return north of 161% in the last five years, which is astounding considering it has a modest beta coefficient of one. Moreover, LVMH stock has delivered 14 consecutive years of dividends, adding allure to its total return profile.
Furthermore, LVMH Moët Hennessy has strong fundamentals. For instance, the firm is running on a net income margin of 18.93%, well above the sector average of 4.52%. More critically, organic growth and acquisition activity suggest that LVMH’s fundamentals are set to strengthen. The company reported nine-month organic growth of 14% in October, with selective retailing gaining significant momentum via Sephora. In addition, LVMH recently announced its acquisition of Barton Perreira, a luxury eyewear company that could broaden LVMH’s end market.
Lastly, LVMH looks good from a capital markets perspective. The stock is due for mean reversion as it’s trading below its 10-, 50-, 100-, and 200-day moving averages while sporting a forward dividend yield of 1.58%.
LVMH stock seems like a great buy!
Compagnie Financière Richemont SA (CFRHF)
Compagnie Financière Richemont SA (OTCMKTS:CFRHF), or Richemont for short, is a Swiss luxury retailer founded by South African billionaire, Johann Rupert. Richemont hosts incredible brands like Cartier, Jaeger-LeCoultre, and Van Cleef & Arpels, to name a few. While overlooked by many, Richemont has emerged from the shadows to ascertain stardom in the luxury retail market. Moreover, the company is aligned for future growth as 40% of its revenue mix stems from high-growth markets in Asia.
Despite trading flat over the past twelve months, key metrics suggest Richemont is a growth at a reasonable price (GARP) stock. For example, Richemont has a forward price-to-earnings-growth ratio of 0.64x, suggesting its earnings-per-share potential has yet to be priced by the market. Additionally, Richemont’s fundamentals add validity to a quantitative vantage point as the firm’s five-year compound annual growth rate of 10.93% was recently matched with a scintillating half-year report. Richemont released its half-year report in November, communicating a 12% increase in sales on a constant FX basis, primarily driven by a 23% year-over-year increase in China region sales. Further, Richemont added $126 million to its operating cash flow, illustrating that its half-year growth spanned via both an accrual and a cash-based basis.
As mentioned earlier, key metrics suggest that CFRHF is a GARP opportunity. However, as an add-on, I wanted to highlight that Richemont has a five-year dividend yield on cost of 4.28%, showing the stock’s ability to drop your cost basis as an investor.
Hermes Intl S.A. ADR (HESAY)
Hermes‘ (OTCMKTS:HESAY) 10-year compound annual growth rate of 13.36% conveys its secular growth qualities. Moreover, Hermes stock is down by more than 5% in the past six months, suggesting a value gap has emerged.
Furthermore, Hermes has numerous short-term variables that point toward sustained growth. The company released its fiscal half-year results a while back, revealing top-notch form. For example, Hermes’ revenue expanded by 22.3% year-over-year to reach $6.698 billion. In addition, the firm’s operating profit margin was maintained at 44%. Hermes’ significant profit margin reflects economies of scale, which naturally leads to pricing power and perpetual sales growth.
A final matter to consider from a fundamental basis is Hermes’ growing presence in emerging Asia. Like Richemont, Hermes has pivoted into Asia to tap into future growth prospects. More than half of Hermes’ sales mix is derived from Asian markets, which I believe will convert into sustainable growth throughout the remainder of the decade.
HESAY stock looks promising from a financial market perspective. Despite its price-to-earnings-growth ratio of 1.35x being slightly high, Hermes stock is trading below its 10-, 50-, 100-, and 200-day moving averages, implying that a technical entry point is in store.
On the date of publication, Steve Booyens did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
