Buying This Luxury Empire
A new stock for our Portfolio
A Luxury Empire.
That’s what we call the next stock we’ll buy tomorrow.
The beautiful thing? Luxury never goes out of fashion.
Buying This Luxury Empire
The stock we’ll buy tomorrow is a dominant force in the luxury industry with a diverse portfolio of brands that cover a wide range of consumer products and experiences. They operate more than 5,000 stores around the world. It’s the second largest company in Europe after Novo Nordisk.
Management has skin in the game as well. The CEO has been leading the company since 1989 and has a stake of 41.4% in the company. Today, the CEO and his family are worth $173 billion. Insiders have also been buying shares recently, indicating that they think the company is undervalued too.
The company has a sustainable competitive advantage as they are a market leader in luxury goods with a portfolio of leading brands spanning multiple industries. The majority of brands within their collection have a history spanning over 100 years. The company has a strong brand name and benefits from a lot of pricing power.
The end market is also growing at an attractive rate. According to Bain & Company, the global luxury goods market is expected to reach a size between $500 billion and $600 billion by 2030. This would double the company’s market size compared to 2020.
This Luxury Empire has a healthy balance sheet and doesn’t require too much capital to operate. Management also made excellent capital allocation decisions in the past. Over the past 5 years, the company’s ROE and ROIC averaged 21.2% and 11.4%. They operate at a Gross Margin and Profit Margin of 68.4% and 17.8% respectively. Most Net Income is translated into Free Cash Flow.
Over the past 10 years, the company managed to grow its Revenue and Free Cash Flow at a CAGR of 11.0% and 15.2% respectively. The future looks bright too. Analysts estimate that over the next 5 years, the company can grow their Revenue and Free Cash Flow at a CAGR of 7.8% and 13.9%.
Last but not least, it’s interesting to highlight that the company is a strong compounder. Since its IPO in 1987, they returned 13.5% per year to shareholders.
Why are we buying today?
But why will we buy this company on Monday at the opening?
The company we’re talking about is a beautiful quality business.
It’s a stock we would always like to own at the right price.
The great news? I think the valuation looks attractive today.
The company trades at a forward PE of 20.0x versus an historical average of 27.5x. This indicates an undervaluation of almost 30%.
In my own model, I expect the yearly return for shareholders will be equal to 11.7% per year over the next 10 years
While I can’t tell you which company I’m talking about (this would be unethical towards Premium Subscribers), I hope you got an interesting insight about the investment rationale.
You want to know the company name and receive the entire portfolio? Become a Premium Subscriber:
Happy Compounding!
Pieter (Compounding Quality)
Something about myself
Warren Buffett once said that it takes 20 years to build a reputation and five minutes to ruin it.
I completely agree with him.
When talking about money and investments, honesty and integrity are by far the most important thing.
And that’s why I think you have the right to know who I am. We are Partners in this and we walk our investment journeys together.
Here’s some basic info about myself:
My name is Pieter Slegers
I live in Belgium (Antwerp)
I used to work for a Belgian Asset Manager
Hobbies: running (I ran my first marathon last year), lifting weights and reading books
Are you also a runner? Email me via compoundingquality@gmail.com and I’ll send you something special.
Whenever you’re ready
That’s it for today.
Whenever you’re ready, here’s how I can help you:
PS You now only pay $399 instead of $499 ($100 discount)
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Finchat: Financial data