Luxury Retail Stocks a ‘Buy,’ Despite Recent Blip: Pro
Investors can find excellent value in luxury retailers such as Burberry and Louis Vuitton, despite warnings of a sales slowdown in the sector, according to James Bevan, chief investment officer at CCLA Investment Management.
Burberry sent shockwaves through the luxury goods market back in September, when the company announced their full-year profits would be near the low end of forecasts. Shares slumped 18 percent in one day leading to a sell-off in other luxury stocks, as well.
Bevan told CNBC on Monday that investors should look for long term profitability and the margins growth that these luxury companies can record.
"We should be able to see shares trade much higher," he said.
"Not just in Burberry, which is very much a recovery story, but in companies that have delivered, the Ralph Laurens, the Coaches, those are the sort of companies, the LVMHs, that I think deserve a much higher multiple than we get at the moment."
Burberry itself may have seen a short term slump but shares in the stock are up almost 90 percent in the last five years. Bevan is adamant that a fair value share price should be 1350 pence compared to Friday's closing price of 1180 pence.
"I simply look at the discounted cash-flow valuation for future profits that the company can deliver and that's what I end up with," he said. "It's a heady number, north of where we are at the moment but in time it's justified if you think about the long term returns that that company can deliver to shareholders."
Bevan believes Coach, Hugo Boss, LVMH and Ralph Lauren are all trading below their fair value price.
"They share brand value, that is very difficult to replicate and invade and therefore they can sell products into the high street at a much higher price relative to their cost base than their other high street competitors."
—By CNBC's Matt Clinch
CNBC Data Pages:
- Dow 30 Stocks—In Real Time
- Oil, Gold, Natural Gas Prices Now
- Where's the US Dollar Today?
- Track Treasury Prices Here
James Bevan does not have any personal or company holdings in the stocks mentioned above.