Key Takeaways
- Luxury stocks have underperformed wider European markets, falling more than 10% in 2026.
- Companies in the sector are struggling with a cyclical slowdown and are not yet showing convincing signs of recovery, analysts say.
- The sector is, on average, trading at a 7% discount compared to Morningstar’s fair value estimate.
After a weak start to the year for global luxury stocks, several opportunities have opened up in the sector, Morningstar analysts say.
The Morningstar Global Luxury Goods Index is down 11% in 2026 in euro terms and remains 7% below its fair value estimate. However, among sector companies covered by Morningstar, there is an even split between undervalued stocks and those that are overvalued or in line with their fair value.
“There is an opportunity to take a position on quality, cheaply traded stocks,” says Jelena Sokolova, senior equity analyst at Morningstar. “But investors must be patient, as the market will need time to incorporate the sector’s cyclical recovery into its valuations.”
Why Are Luxury Stocks Still Struggling?
The signs of improvement observed so far, the analyst argues, have not been even across the globe. In the United States, solid stock market performance, fueled by the artificial intelligence boom, has boosted spending among affluent consumers, while in China, consumption remains subdued due to persistently weak real estate prices.
With fixed costs remaining high—from marketing expenses to store chain management—margins continue to be significantly lower than historical levels. “In the long term, however, we expect that most luxury sector players with a competitive advantage will see improved profitability. For these reasons, discounted luxury stocks represent good long-term investment opportunities,” adds Sokolova.
Key Metrics and Analysis for Undervalued Luxury Stocks in Morningstar’s Coverage
- Fair Value Estimate: USD 45.50
- Morningstar Rating: ★★★★★
- Economic Moat: None
- Morningstar Uncertainty Rating: Very high
Capri Holdings has lost 31.64% in US dollars since the beginning of the year, but Morningstar analysts rank this stock among the best investment ideas in the luxury sector due to its high discount of 63% to fair value.
“Despite not having an economic moat, the company that owns Michael Kors and Jimmy Choo is reinventing itself after the failed acquisition by Tapestry and the sale of Versace to Prada for $1.375 billion. Capri has nearly paid off its debt and resumed share buybacks. Its strategic priority is to stabilize sales and margins at Michael Kors, a leading US handbag brand, which has been losing market share,” says David Swartz, equity analyst at Morningstar.
“We believe Capri is making progress in improving its positioning. Meanwhile, Choo is one of the best luxury footwear brands, but it lacks sufficient economies of scale and is unprofitable. We believe the Choo brand could be an attractive acquisition candidate by a luxury or footwear company, should Capri decide to divest it,” he adds.
- Fair Value Estimate: EUR 313.00
- Morningstar Rating: ★★★★
- Economic Moat: Narrow
- Morningstar Uncertainty Rating: Medium
Since the beginning of the year, Kering shares have lost 15.50% in euros and are now trading more than 20% below the fair value estimate of EUR 313.
“Kering is the third-largest luxury group by revenue but is currently trading at 40 times expected earnings, a value close to historic lows. We believe the market’s low valuations are influenced by the combined effect of the industry’s difficulties, the weak momentum of the Gucci brand, and the significant investments made to relaunch it,” says Jelena Sokolova.
“Our optimism about the stock is based on the fact that the Gucci brand, although going through a difficult period, should be able to regain its competitiveness in terms of price and desirability in the long term thanks to its strong brand awareness, significant marketing resources, control of the distribution network, and access to top managerial and creative talent,” she adds.
- Fair Value Estimate: HKD 53.00
- Morningstar Rating: ★★★★
- Economic Moat: Narrow
- Morningstar Uncertainty Rating: High
Prada is trading at a discount of about 25% compared with the fair value estimate of HKD 53 after having lost 7% since the beginning of the year in Hong Kong dollars.
“Prada shares are trading with a price/earnings per share just above 10 despite better results than most of its competitors in the luxury sector. While we share some of the concerns that the market has towards the group, regarding the risk linked to the volatility of sales for fashion brands, the imminent weakness is already incorporated into our forecasts and largely reflected in the share price,” Sokolova says.
“Although the market is skeptical about the recent acquisition of Versace, Prada, thanks to its managerial experience in the luxury sector, could turn it into a success. Prada remains one of the strongest and best-known brands in the luxury leather goods sector, alongside major competitors such as Kering’s Gucci and LVMH’s Louis Vuitton,” she adds.
- Fair Value Estimate: GBX 1370.00
- Morningstar Rating: ★★★★
- Economic Moat: Narrow
- Morningstar Uncertainty Rating: High
Burberry shares have lost 15.76% since the beginning of the year in GBP terms and are now trading at a 22% discount to Morningstar’s fair value estimate of GBP 13.70.
“Burberry is the category leader in trench coats, generating good profitability in this category thanks to economies of scale and pricing power. The company benefits from a high degree of control over distribution, which allows it to correct operational errors more quickly, present the brand in key locations in global capitals, avoid excessive discounts, and maintain greater bargaining power with wholesale partners. Over the past 10 years, Burberry has lagged behind its industry peers in terms of revenue growth, which we believe is partly linked to weaker growth in the apparel category, but also to a series of missteps in strategy execution,” says Sokolova.
“After years of trying to revive its leather goods and fashion business, Burberry is refocusing on its core products (outerwear and scarves) in marketing messages and merchandising, which we view positively. The strategy is showing initial signs of success, with revenues returning to growth. We believe Burberry can return to annual growth of 4%-5% and double-digit margins in the long term,” she adds.
LVMH Moët Hennessy Louis Vuitton
- Fair Value Estimate: EUR 620.00
- Morningstar Rating: ★★★★
- Economic Moat: Wide
- Morningstar Uncertainty Rating: Medium
LVMH stock has been among the worst performers in the sector since the beginning of the year. The French group’s shares have fallen 22.64% in euros this year and are now trading at a 22% discount to their fair value estimate of EUR 620.
“LVMH is the world’s largest luxury group with one of the strongest brands in luxury fashion and leather goods, Louis Vuitton, whose broad competitive advantage is supported by economies of scale, exceptional brand awareness, pricing power, and full control of distribution. Furthermore, the group invests more than its competitors in marketing, which should ensure its brands remain desirable over the long term. The valuation appears attractive given short-term geopolitical risks and the current downturn in the sector, which we consider cyclical,” Sokolova says.
