Premium at a Luxury Bag Maker: Hermès

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Hefty price tag reflected at a consistently expanding hand-bag maker

Hermès, a 181-year-old French luxury goods manufacturer, did not escape the recent broader market price drop tumbling about 6.5% from its all-time high and now traded at $52.27/ADR share.

Despite this, Hermès still traded at price-earnings multiple of 39x and price-book multiple 9.8x.

The €45 billion bag manufacturer reported its half-year report for June 2017.

As of June 2017, Hermès reported 11.2% rise in revenue and 11% profit increase in its recent six months of operations. The company also had negligible debt with a book value of €4.57 billion.

In a recent Reuters report, Hermes’ sales reached 5.5 billion euros for 2017 as a whole, up 9 percent at constant currencies.

“There is good momentum in our industry because of demographics and because of the economic growth of China and the worldwide economy.

“We are confident for the future and it will continue I hope at this kind of pace,” he added.

Chief Executive Axel Dumas

In the past three fiscal years excluding 2017, Hermès allocated €1.6 billion in financing activities (mostly dividends payouts and share repurchases) while having accumulated €2.8 billion in free cash flow.

Conservative estimates indicated a per share figure that is about 28% off from today’s market capitalization of €45 billion, at €32 billion. This would probably be a per ADR share price of $37.54 vs. $52.27 at the time of writing.

Disclosure: No shares in Hermès.

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