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.