Hermes (EPS: RMS) stock price is thriving, becoming one of the best-performing companies in the CAC 40 index. It has jumped by more than 35% in the past 12 months while the CAC 40 is up by less than 12%.
Hermes is beating luxury goods stocksHermes is also beating other luxury goods companies like LVMH, Richemont, and Kering. LVMH has risen by 5% while Kering has dropped by over 25% in the same period. Richemont, the parent company of Cartier, Van Cleef, and Buccellati, has barely moved in the same period.
Christian Dior, the €144 billion juggernaut has also moved sideways in the past few months.
This trend has continued in 2024 as the Hermes share price has surged by more than 20%, making it the second-best performing company in the CAC 40 index after Safran, the giant industrial giants.
What is notable is that Hermes has continued to close the valuation gap with LVMH. Its market cap has jumped to over €245 billion stands at over €425 billion.
Kering vs Hermes vs Dior vs LVMH
Why Hermes share price is beating LVMHThere are a few reasons why Hermes is doing better than LVMH. First, LVMH has a conglomerate discount because of its size. LVMH owns over 70 companies in its portfolio. Some of the most notable ones are companies like Louis Vuitton, Bulgari, Tiffany, and Moet & Chandon.
It operates across all sectors in the luxury brands market. In this, it has a presence in six sectors like perfumes, wines and spirits, watches, and fashion.
Being a conglomerate is a good thing because some underperforming sectors can be offset by their counterparts. However, as I wrote in this article on General Electric, investors no longer value conglomerates.
Instead, they value companies that are lean and experts in their small sectors. Therefore, they love Hermes, which is a more straightforward company.
This explains why LVMH trades at a discount compared to Hermes. LVMH has a PE ratio of 27.25 while Hermes has a multiple of 54. This explains why some investors believe that LVMH would achieve a better valuation if it was broken down. In this case, the company’s sum of parts is bigger than its whole.
The same is true with Kering, which is a large company that owns several brands. Its key brands include Gucci, Alexander McQueen, Brioni, and Saint Laurent. Kering trades at a small PE multiple of 16.
Hermes is also growing at a faster pace than LVMH. That’s mostly because the company’s products cater to the super rich, who are less affected in downturns.
The most recent results revealed that the company’s annual revenue surged by 21% in 2023 to over €13.4 billion. LVMH, on the other hand, had a revenue growth rate of about 8% during the year.
According to WSJ, Hermes is able to see this growth because it does not mass produce most of its products, leading to an artificial shortage. It also helps the company ensure that there are always buyers even in periods of recessions.
Finally, Hermes has cultivated a loyal following by not increasing its prices as dramatically as other firms do.
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