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Hermès: Strong Fundamentals And 'One And Only' Status Justify Valuations

Karreta Advisors profile picture
Karreta Advisors


  • Hermès is a high-quality franchise with a track record of high profitability, free cash flow generation, and pricing power.
  • Its core earnings driver is the Asia market, which showed significant resilience during FY12/2020 as well as being the most profitable, improving the sales mix.
  • Headline valuation metrics may be high, but we believe they are justified based on the company's "one and only" status in the competitive premium luxury goods sector.

Photo by Freedoo/iStock Editorial via Getty Images

Investment thesis

Hermès (OTCPK:HESAY) (OTCPK:HESAF) is a high-quality franchise generating shareholder value on a consistent and predictable basis. With its strong pricing power, returns will remain high, and earnings growth will come primarily

This article was written by

Karreta Advisors profile picture
We are an independent research house. We look at global stocks, favoring those with sustainable growth and recognized or emerging as a high quality franchise at suitable valuations. We primarily serve institutional investors.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (10)

Adjank profile picture
Another question to ask is if Hermes ever traded at a lower valuation then around 40 to 50 times earnings.
M8 has HESAY at 1* valuation. Occasionally HESAY price drops because of some major macro event. Then it is time to buy.
Steven Miller profile picture
I can understand paying a premium for a quality company. I do it often. But I've never been able to bring myself to pay for this one. I keep thinking the stock price going to come down one of these days. I still believe it will, and it may even being showing a top now. It's hard to know.
Karreta Advisors profile picture
@Steven Miller Thanks for your comments - it is not an easy call with the headline multiples, but the business keeps proving itself time and time again it seems.
piterectus profile picture
@Steven Miller My friend I can tell you that I have owned thsi stocks for several decades and never, never had a good price "to buy", it as always too expensive. However its price never came dawn, never. Du you know why? Because it is a unique company with Velben products run for a family as good as its product. So is the crown jewerly of the luxury & Velben producs. Buy now and in a few years you will know what I mean
piterectus profile picture
The track record for the past several decades show that Hermes is unique.
Has The best managed family company in Europe (perhaps the world) with unique VEBLEN goods that, for me, make it the best large company in Europe.

Hermes is so strongly hold and preserve for the long term that not even Louis Vuitton could purchase it.
By the way, LVMH is the second best company in Europe, just behind Hermes
@piterectus Own both. They are amazing companies and investments.
Karreta Advisors profile picture
@piterectus Hi and thank you for your comments - I think you may be right, but my preference is LVMH just from a higher FCF yield. Both are amazing businesses, so high quality.
Karreta Advisors profile picture
@disney4ever You are a great stock picker! Thanks for the comment.
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