Key insights
- An analysis suggests LVMH faces near-term headwinds from slowing growth in China and weaker aspirational buyers in the West, pressuring margins. While revenue and margins are expected to decline through 2025, the company's focus on preserving its brand moat and long-term pricing power is viewed favorably. The analysis projects a gradual recovery driven by pricing power, cost absorption, and growth in new regions. Overall, this suggests a slightly negative outlook for luxury goods, potentially impacting US-listed consumer discretionary stocks.
Just finished a deep dive on LVMH, so here’s the shorter Reddit version.
Main takeaways:
\* LVMH is still one of the highest-quality luxury businesses in the world
\* The moat is still very strong: brand power, pricing power, distribution control, and scarcity discipline
\* Fashion & Leather Goods remains the economic heart of the whole group
\* China is the main short-term problem
\* The aspirational buyer in the West is also weakening
\* That combination is putting pressure on margins, even if the long-term thesis is still intact
\* Sephora, Beauty, and Watches & Jewelry help soften the blow
\* The big long-term question is whether India and the Middle East can gradually reduce dependence on China
What I found most interesting:
LVMH is not really acting like a company trying to protect short-term optics. It is acting like a company trying to protect the moat first. That matters, because refusing discounts and keeping brand discipline can hurt near-term growth, but it also helps preserve long-term pricing power.
Valuation:
I modeled a stagnation phase first, then a gradual recovery.
Revenue:
\* 2023 revenue: 86.2B
\* 2025 trough in my model: 80.8B
\* 2026 recovery: 84.0B
\* 2031 revenue in my base case: 111.4B
Margins:
\* EBITDA margin falls from 34.5% in 2023 to 30.7% in 2025
\* EBIT margin falls from 26.2% in 2023 to 21.2% in 2025
\* By 2031, I model EBITDA margin at 32.0% and EBIT margin at 24.0%
So my base case is not built on peak margins returning immediately. It assumes real pressure in the near term from negative operating leverage, weaker China, and slower growth, followed by a gradual recovery from:
\* pricing power at the top end
\* better fixed-cost absorption
\* stronger own-retail mix
\* more stable growth in new regions
Cash flow:
A big part of the valuation is that free cash flow holds up better than the headline revenue weakness suggests.
Why?
\* working capital normalizes hard
\* inventory discipline improves
\* capex drops after a heavy investment cycle
Capex:
\* 2023 capex: 7.5B
\* 2025 capex in my model: 4.6B
\* 2031 capex rises again to 7.2B
That drop is important. I assume LVMH is moving out of a heavy investment phase, then gradually ramps spending back up later for experiential luxury, premium retail infrastructure, and long-term growth projects.
Multiples / fair value:
\* Current price: \~€499
\* DCF fair value: \~€677
\* WACC used: 8.0%
\* Terminal growth: 3.0%
\* 2031 P/FCF multiple used: 28x
\* 2031 P/FCF scenario value: \~€846
\* My blended TVF target: \~€762
Why 28x P/FCF?
Because I still think LVMH deserves a premium multiple if:
\* the moat remains intact
\* margins recover only partially, not heroically
\* free cash flow quality remains strong
\* the company keeps its status as a high-quality compounder, even if growth is slower than in the post-Covid boom
Expected return from my blended target:
\* about 5.2% annual share price return
\* plus about 2.7% dividend yield
\* roughly 7.9% expected annual total return
My conclusion:
This is not an “everything is perfect” stock right now. There is real pressure in China, real margin compression, and real execution risk around new growth markets.
But if you believe LVMH can move through this stagnation phase without breaking its pricing power or brand equity, I still think the stock looks undervalued versus normalized long-term cash flow.
I am not allowed to post the link here, but I have done so in other subs.
Disclaimer: This is not financial advice
I currently own 40 shares of LVMH