Earnings and valuations that flipped
Europe's top luxury houses are priced at their lowest in more than a decade after fresh results undercut hopes for a quick turnaround. Hermès shares fell again Friday, extending the slide that followed its disappointing third-quarter update tied mostly to weaker demand in China. The stock now carries an estimated forward multiple near 27x, a long way from about 70x at its post-pandemic high.
LVMH's update last week told a similar story, with sales in China declining and its valuation compressing. The shares change hands at roughly 16x expected earnings, matching the cheapest levels for the group in more than a decade. Both Hermès and LVMH are down about 40% this year as the long-awaited rebound in luxury has not arrived.
Analyst takes and fresh risks
Berenberg, led by Nick Anderson, cut Hermès to hold from buy on Friday, pointing to concerns the company may be more dependent on China and on aspirational shoppers than previously thought.
"The valuations reflect both their underwhelming results and a weaker macro," said Bernstein's Maria Meita. She added that LVMH is still a macro call that likely needs China to reaccelerate, while Hermès holders have lost conviction in a business model long viewed as resilient thanks to wait-lists for its most coveted items.
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Another wrinkle: Bloomberg Intelligence's Deborah Aitken warned that public disorder in France "adds further risk, given planned marches threaten store traffic and tourism." That lands on top of already cautious buyers.
What this means for your portfolio
Wealthy Chinese consumers have been spending less amid a property crunch, weaker financial markets, and an official push to tax offshore wealth. That retrenchment is showing up directly in sales and in what investors are willing to pay for these stocks. Even with valuations marked down, investors still look hesitant to step in and scoop up battered luxury stocks.
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