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.

note absolute revenues and rating LV versus smaller hermes race, how long to mean revert

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