After many years of solid performance on the stock market, the prices of these two stocks have diverged sharply over the past 18 months. The question today for investors in the luxury goods sector, is whether high-flying Hermès is still worth a punt, or whether out-of-favor LVMH is now the one to watch?
While the Hermès RMS and LVMH MC luxury groups operate in the same sector, that is where the similarities end from an investor’s point of view.
Both luxury groups performed relatively well pre- and post-COVID-19, but their performances have been very different ever since. Hermès shares have outperformed LVMH strongly over the past 18 months. LVMH shares even fell back during 2024; a slide that has amplified since the beginning of the year, due to growing economic uncertainties linked to the Trump administration’s tariff policy and disappointing results.
Unsurprisingly, the two companies don’t have the same appeal for investors, which is seen in their stock prices. Hermès is currently trading at a premium, while LVMH has recently been trading at a discount.
While since the financial crisis of 2008, the European luxury goods sector has been regarded as something of a favorite among investors, due to its intrinsic qualities - value of luxury brands, ability to pass on price rises, solid organic growth and high profitability - this sentiment has deteriorated more recently. Cost-conscious consumers, more sensitive to price increases in a less certain economic climate, have impacted sales growth for many stocks in the luxury goods sector.
While in both 2017 and 2018, LVMH posted higher organic growth figures than Hermès, the situation has been the reverse since 2019. The latest first-quarter results published in April, show that Hermès sales grew by 7% on a like-for-like basis (excluding currency effects), while LVMH reported a 3% organic drop in consolidated sales, including a 5% decline in its Fashion & Leather Goods division- home to its most iconic brands, Louis Vuitton and Christian Dior.
This shift in financial performance is reflected in both Hermès and LVMH’s share prices. “Not so long ago, LVMH was Europe’s largest company. This reflects the divergent performances and investor sentiment towards the two companies,” Sokolova adds.
The LVMH discount
Sokolova says LVMH is not immune to sector slowdown, but with a portfolio of strong leading brands in several luxury niches, and with a wide moat, she believes it is well positioned to generate profits well into the future.
She says that today, on 19x expected earnings, LVMH shares seem undervalued. Morningstar analysts have recently reduced their fair value estimate for LVMH to EUR 620 per share from EUR 650 per share.
As Sokolova explains, having reduced forecasts for 2025 sales and profits slightly to reflect a tougher macroeconomic backdrop: “Longer term, we expect the leather goods division to expand by 6% with an average margin of 40% (39.9% in 2022 and low 30% historically). We expect Louis Vuitton to continue to deliver above industry, mid- to high single-digit revenue growth driven by the brand’s global appeal and pricing power, while other fashion and leather goods brands should scale benefiting from LVMH group’s resources.”
Today, with the stock trading at a 21% valuation discount to Morningstar’s fair value estimate, LVMH is looking more attractive to investors.
Morningstar key indicators for LVMH shares
- Economic Moat: Wide
- Fair Value Estimate: €620
- Morningstar Uncertainty Rating: Medium
- Price/Fair Value: 0.79
- Morningstar Rating: ★★★★
The Hermès valuation premium
Meanwhile, Hermès is in a very different situation to LVMH. Its stock is trading at a hefty 56% valuation premium to Morningstar’s fair value estimate.
“LVMH is more exposed to aspirational consumers than Hermès, which makes the latter more resilient to the downturn in the sector (wealthier consumers are more resilient),” notes Morningstar’s Sokolova.
“Hermès benefits from a pricing power that it has exercised less than its competitors, which today enables it to take advantage of the upturn in activity on the secondary market and boost its sales. Finally, in times of slowdown, investors tend to seek refuge in safe havens, and Hermès is perceived as a safe asset in this sector,” she adds.
But at 52x expected earnings, according to the FactSet consensus, the stock is clearly overvalued, says the analyst.
Morningstar key indicators for Hermès shares
- Economic Moat: Wide
- Fair Value Estimate: €1580
- Morningstar Uncertainty Rating: Medium
- Price/Fair Value: 1.54
- Morningstar Rating: ★
