Shares of LVMH (OTC: LVMUY) were moving higher today as the luxury goods conglomerate won an endorsement from Goldman Sachs.
As of 12:10 p.m. ET, the stock was up 5.1% on the news.
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LVMH gets a leg up
Luxury stocks have struggled in the current environment amid weak consumer spending in China and pressure from the trade war, but now one of Wall Street’s most respected institutions thinks the sell-off has gone too far.
This morning, Goldman added LVMH to its European Conviction Buy list, arguing that investors should look through second-quarter softness and calling LVMH “a clear winner in the next luxury upcycle.”
LVMH’s first-quarter revenue results were disappointing as organic revenue was down 3% to 20.3 billion euros. Additionally, the company didn’t post organic growth in any of its five categories, and fashion and leather goods, its biggest segment, saw a 5% decline in organic revenue.
What’s next for LVMH
The luxury goods sector is sensitive to the same set of economic factors, including spending in China, the general economic cycle, and the stock market.
However, luxury goods like LVMH’s wide range of brands are also known for timelessness, and the company has a long history of riding out economic volatility and continuing to grow. While Goldman Sachs might be premature in the timing of its call, given the highly fluid trade situation, the stock looks well priced at a price-to-earnings valuation of 19.
With the stock down by nearly a third over the past year, LVMH should eventually bounce back, and that could come sooner rather than later if the global economy can absorb the trade shifts.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.
