Hermès RMS and LVMH MC are two of the biggest and best known luxury companies in the world. But the fortunes of these two companies—and the performance of their stocks—have diverged sharply over the past 18 months, with Hermès recently overtaking LVMH as the world’s largest luxury stock.
But for long-term investors looking for tap into demand for luxury brands, is Hermes or LVMH the better option?
After the recent stock market performance, Hermès is now a 1-star stock, according to Morningstar metrics, while LVMH is a 4-star stock.
Key Morningstar Metrics for Hermès Shares
- Economic Moat: Wide
- Fair Value Estimate: EUR 1,580
- Morningstar Uncertainty Rating: Medium
- Price/Fair Value: 1.54
- Morningstar Rating: ★
LVMH shares have lost 22% this year and nearly 40% on the May 2024 levels. They are now trading around EUR 500, below the Morningstar fair value estimate of EUR 620, meaning the shares are undervalued.
Key Morningstar Metrics for LVMH Shares
- Economic Moat: Wide
- Fair Value Estimate: EUR620
- Morningstar Uncertainty Rating: Medium
- Price/Fair Value: 0.79
- Morningstar Rating: ★★★★
Hermès and LVMH - Why Have Their Stocks Diverged?
Both luxury groups outperformed wider markets before and during the pandemic as many stuck-at-home consumers spent their savings on luxury goods, but their performances have gone in different directions ever since. Hermès shares have outperformed LVMH since 2023, a pattern that became even clearer with LVMH’s sharp decline during 2024. That slide has amplified since the beginning of this year, due to growing economic uncertainties linked to the US tariff policy, as well as disappointing results for LVMH.
While the European luxury goods sector has been prized for its prestige brands, ability to pass on price rises, consistent organic growth and high profitability, these attributes have deteriorated more recently. Cost-conscious consumers, more sensitive to price increases in a less certain economic climate, have affected sales growth in the segment.
Fundamentals have diverged for the two companies too.
In both 2017 and 2018, LVMH posted higher organic growth figures than Hermès, the situation has reversed since 2019. The latest first-quarter results show that Hermès sales grew by 7% on a like-for-like basis, excluding currency effects, while LVMH reported a 3% organic drop in consolidated sales, including a 5% decline in its fashion and leather goods division, home to its most iconic brands, Louis Vuitton and Christian Dior.
This shift in financial performance is reflected in both Hermès and LVMH’s share prices.
“Not so long ago, LVMH was Europe’s largest company. This reflects the divergent performances and investor sentiment towards the two companies,” Morningstar analyst Jelena Sokolova says.
Hermès replaced LVMH as Europe’s most valuable luxury company by market cap on April 15.
Louis Vuitton Expected to Keep Growing
Morningstar’s Sokolova says LVMH is not immune to sector slowdown, but with a portfolio of strong leading brands in several luxury niches, and with a wide moat, she believes it is well positioned to generate profits well into the future.
Today, on 19 times expected earnings, LVMH shares are undervalued, she says, but she recently trimmed her fair value estimate for LVMH to EUR 620 from EUR 650 per share to reflect lower earnings expectations amid a tougher economic backdrop.
“Longer term, we expect the leather goods division to expand by 6% with an average margin of 40%,” Sokolova says. This compares with 39.9% in 2022 and around 30% historically.
“We expect Louis Vuitton to continue to deliver above industry, mid- to high single-digit revenue growth driven by the brand’s global appeal and pricing power, while other fashion and leather goods brands should scale benefiting from the LVMH group’s resources.”
The stock now trades at a 21% valuation discount to Morningstar’s fair value estimate.
The Hermès Valuation Premium
Hermès is in a very different situation to LVMH. Its stock is trading at a hefty 56% valuation premium to Morningstar’s fair value estimate.
“LVMH is more exposed to aspirational consumers than Hermès, which makes the latter more resilient to the downturn in the sector. Wealthier consumers are more resilient,” Sokolova notes.
As well as its benefiting from its wealthier clientele, Hermès could even be a “safe-haven” asset in the luxury sector at a time of wider economic turmoil.
“Hermès benefits from a pricing power that it has exercised less than its competitors, which today enables it to take advantage of the upturn in activity on the secondary market and boost its sales. Finally, in times of slowdown, investors tend to seek refuge in safe havens, and Hermès is perceived as a safe asset in this sector,” she adds.
But trading at 52 times expected earnings, according to FactSet consensus estimates, the stock is clearly overvalued, Sokolova says.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
