'We would sell': why analysts advise profit taking in luxury stocks

Investors should sell shares of luxury companies on any growth of their quotations, Berenberg analysts advised. In their opinion, the sector is facing persistent problems of business growth, Bloomberg writes.

Valuations of luxury companies may fall by 25-35% relative to the average levels of the last nine years, according to analysts led by Nick Anderson. The reason for their pessimism was the latest reports of fashion houses. According to analysts Berenberg, she questioned the very idea that the European luxury sector is still a "growth story". According to them, the arrival of new designers at fashion brands has failed to regain consumer interest. In addition, demand for luxury from Chinese consumers and more price-sensitive customers remains weak, they added.

"So we would sell on any rally within a bear market," Anderson said. That said, the analyst maintains a "buy" recommendation for higher-priced luxury brands, including Brunello Cucinelli and Hermès, which he considers his favorites.

Berenberg's recommendation to lock in profits in shares of luxury companies reflects growing investor concern about one of the key sectors of the European market, Bloomberg notes. Previously, luxury brands were considered the European counterpart to U.S. bigtech companies for investors due to their rapid growth and sustainable business models. However, now the sector's shares are still trading below the boom levels that followed the COVID-19 pandemic, the agency notes.

European luxury stocks rallied last week amid US attempts to reach a deal with Iran to end the war that began in late February. However, the sector lost gains on Monday, May 11, after U.S. President Donald Trump called Tehran's latest peace proposal "totally unacceptable" on Ma 10. UBS's basket of luxury stocks fell 2.3 percent in trading. The papers of French conglomerate LVMH fell by 4.1%, Hermès shares fell by 3.2%.

The consensus forecast of analysts on shares of luxury giants is still predominantly positive: LVMH has 16 "buy" recommendations out of 25, while 10 analysts advise to hold the securities. Only one recommends selling the company's shares.

For Hermès, the Wall Street consensus is also optimistic, with 14 out of 22 analysts covering the company's stock recommending a buy. Seven analysts have a neutral recommendation and one has a negative recommendation.

This article was AI-translated and verified by a human editor