LVMH: A Strategic Buy Amid Luxury Sector Volatility

The luxury sector has faced a turbulent 2025, with European luxury stocks shedding €175 billion in market value as investors recalibrate for a slower-growth world. Amid this volatility, LVMH (LVMUY) stands out as a compelling opportunity. Traded at a trailing twelve months (P/E) ratio of 18.76—well below its 10-year average of 27.41 and the sector's forward P/E of 27—LVMH is undervalued by roughly 30%. This discount, while reflecting short-term macroeconomic headwinds, overlooks the company's operational resilience, strategic agility, and long-term growth potential. For investors with a medium-term horizon, LVMH offers a rare combination of discounted valuation and durable competitive advantages.

Undervaluation Amid Sector-Wide Correction

LVMH's current P/E ratio of 18.76 is a stark departure from its historical norms and industry peers. While competitors like Hermès (HESAY) trade at a premium (P/E of 53.84) and Kering (21.37) cling to modest premiums, LVMH's valuation appears disconnected from its fundamentals. Analysts estimate a fair P/E of 26.3x for the company, suggesting a 40% re-rating potential if macroeconomic conditions stabilize or LVMH outperforms expectations.

The discount stems from several factors: weaker demand in China and Japan, currency volatility, and investor skepticism about LVMH's ability to regain traction in Asia. Yet these challenges are temporary. The company's 22.6% operating margin in the first half of 2025—despite a 4% revenue decline—demonstrates its pricing power and cost discipline. With free cash flow of €10.5 billion in 2024, LVMH has the financial flexibility to navigate near-term headwinds while investing in long-term growth.

Operational Resilience in a Shifting Landscape

LVMH's ability to adapt is its most underrated strength. In 2024, the company generated €84.7 billion in revenue, with €19.6 billion in profit from recurring operations, even as global luxury demand normalized. Its Fashion & Leather Goods segment—anchored by Louis Vuitton, Dior, and Céline—maintained high margins despite an 8% revenue dip in Japan, a market skewed by weak tourist spending in 2024. The Watches & Jewelry segment, meanwhile, has seen Bvlgari and Tiffany & Co. drive innovation through store redesigns and product launches, such as the Serpenti collection and new U.S. manufacturing facilities.

The company's strategic investments in selective retailing and digital transformation are equally critical. Sephora, LVMH's beauty powerhouse, continues to expand its omnichannel presence, while DFS's cost-cutting measures have improved profitability. These initiatives underscore LVMH's focus on long-term customer loyalty, a differentiator in a sector increasingly dominated by “quiet luxury” brands.

Regional Diversification as a Buffer

LVMH's geographic footprint is a key tailwind in a fragmented market. While Japan and the Wines & Spirits segment (down 8% in 2025) have faced challenges, the rest of Asia and North America are showing resilience. Local demand in the U.S. and Europe remains stable, with the Fashion & Leather Goods segment contributing 35% of LVMH's revenue. This diversification allows LVMH to offset regional underperformance with growth in other markets—a stark contrast to peers like Richemont, which remain heavily concentrated in Europe.

Geopolitical risks, including U.S.-China trade tensions, have complicated global supply chains. Yet LVMH's proactive approach—such as expanding U.S. manufacturing and exploring brand sales (e.g., potential divestiture of Marc Jacobs)—positions it to mitigate these risks. The company's brand ecosystem, spanning 75+ labels, also allows it to tailor offerings to regional preferences, from haute couture in Paris to aspirational watches in Dubai.

A Strategic Buy for the Long-Term

LVMH's current valuation discounts its ability to outperform in a stabilizing luxury market. With a P/E ratio 30% below the sector average and a 22.6% operating margin, the company offers a margin of safety for investors. The risks—geopolitical tensions, currency swings, and softness in Asia—are already priced in, and LVMH's balance sheet provides ample room for strategic maneuvering.

For those seeking exposure to the luxury sector, LVMH is a superior choice to overvalued peers like Hermès. Its undervaluation, operational discipline, and geographic diversification create a compelling case for long-term outperformance. As global demand normalizes and LVMH executes on its innovation and retail strategies, a re-rating to 26.3x earnings could unlock significant upside.

Investment Thesis: Buy LVMH for its discounted valuation, durable brand equity, and strategic resilience. Target price: €75 (based on 26.3x 2025 estimated earnings).