LVMH—The only high fashion I will (ever) own?
LVMH—The only high fashion I will (ever) own
This note is a record for me to check what I thought at the
time of purchase. So to keep me honest.
The basic stats I am using here are as follows.
At 660e the stock trades at a historic PE or 22X and has had
a 5 year EPS cagr of 26% to 2022. The forward assumptions I am making are 9%
eps growth for the next 5 years and an exit PE of 20X. The historic 5y average
pe has been 32X with one standard deviation of 12, giving me the conservative
20x, which I have not adjusted. The 5 year return on these assumptions is 7%
pa. not great but reasonable for a company of LVMH standings. The shares are
being funded from lower-returning investments.
The balance sheet is 1.1X, not fully clean but not bad.
(ND/ebitda)
The stability of earnings is 60%, while I like 75%, if we adjust
for C19, it is 75%, so ok. (earnings regression around the trend).
The obvious issue, to me anyway, is the over-earning by
LVMH. The company has been a big beneficiary of spending post-C19. I suspect as
stimi payments transfer to the wealthiest (as they invariably do). The 2022 EPS
was 30% above trend, a fast reversion to mean will be problematic, however, looking
at the difference in past EPS growth and future assumptions, ie 26% versus 9%,
is expected to take this risk into account.
The stock trades at the same price as 3 years ago, which I
think acknowledges that the market is not overly excited.
Position sizing is modest. Given the quality of the company,
a much higher position could be taken, easily 2X, if the stock offers that opportunity,
600e or below, IMO.
The note is not meant to be a report on LVMH, except to acknowledge
it is a world leader in the space and part of my international shares strategy to
buy high-quality companies at reasonable prices as I move from ETF to direct holdings.
Leave the risky stuff to domestic shares which I know much better.
Disclaimer, DYOR, This is my strategy not yours and is not
advice.
Please note the disclaimer.
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