The French luxury design house Hermès International was first established in 1837 as a hardness and bridle workshop for the carriage trade. It earned a notable reputation across France and among European noblemen. The company expanded its product offerings to include saddles beginning in 1880 and its first Haut à Courroies bad in 1900. It further offered leathered goods and couture apparel to become a full-blown luxury house.
Investing in Hermès Stock: Notable Pros and Cons for Investors
Pros: Hermès Stock Advantages
Hermès succeeded in cementing its place in the luxury market and among the elite across the world. People were even excited when it had gone public on the Paris Bourse. Hermès stock is now one of the most sought-after luxury stocks in the world and is one of the components of the CAC 40 French stock market index alongside other luxury companies like Kerin and LVMH and large multinational companies like Airbus and Sanofi.
The premium pricing of its product also places it on top of other luxury fashion houses. The brand has been known for its iconic leather goods like bags that cost from thousands to millions of dollars. It is a true luxury brand that targets exceedingly affluent customers. Even its stock price has become more expensive than large-cap tech companies like Apple, Microsoft, and Tesla. The following are the advantages of investing in Hermès stock:
• Established Luxury Brand: Hermès is one of the few examples of companies that can charge their customers a premium without affecting its brand reputation. It is an exclusive brand that caters to the most affluent members of society. The premium pricing strategy is complemented by excellent craftsmanship and artificial scarcity.
• Stable Growth and Profits: Another advantage of Hermès stock is that it has a proven history of consistent growth in sales and high profit margins. The high stock price of the company is reasonable in this regard. Investing in Hermès means betting on its ability to increase its sales and profits further in the future.
• Emerging Market Prospects: The company has several growth opportunities that it can focus on. These include developing economies in Southeast Asia and Latin America and the younger Millennial and Gen Z markets with increasing disposable incomes. There is also an opportunity from electronic commerce expansion.
• Growth Stock Qualities: Investing in Hermès stock also means adhering to the principles of growth investing. This stock is a growth stock. It has a high price-to-earnings ratio and its potential for higher future earnings makes it ideal for individual or institutional investors who want to realize a significant level of capital appreciation.
• Expansion and Partnerships: Another growth opportunity centers on expansion through the acquisition of smaller luxury brands or vertical supply chain integration. There is also an opportunity to partner with other companies within the luxury market like automobile manufacturers, reputable tech companies, and hospitality companies.
Cons: Hermès Stock Disadvantages
There are some risks and drawbacks to investing in luxury companies. The performance of these companies often hinges on trends, brand perception, and economic conditions. Hermès has a strong brand and has established product lines that have been considered classics and must-haves but it is not accessible and still vulnerable to economic downturns that can affect the purchasing power and preferences of the consumers and the overall target market.
Hermès also competes with other luxury conglomerates and fashion houses like Kerin and LVMH and with the overall fashion and retail market. The expansion of fast fashion companies like Shein, H&M, and Zara that replicate luxury trends at a faster pace and lower price points in the global market devaluates the exclusivity of luxury fashion houses and influences price perception. The following are the disadvantages of investing in Hermès stock:
• Intensity of Competition: The company faces tough competition with other luxury brands that can offer the same customer experiences and with more affordable alternatives that provide more alternative and somewhat similar products. Hermès also needs to remain relevant in an era of changing perceptions and preferences.
• Supply Chain Challenges: Hermès is dependent on skilled artisans and high-quality materials to produce its iconic leather goods and other fashion items. A disruption in the supply chain, an increase in the bargaining power of the suppliers, and shortages in and issues with labor and raw materials will affect its production capacities.
• Exclusive Business Model: The company operates a very exclusive business model with a limited number of stores, a stringent customer selection process, and limited supplies. It is impossible for a first-time customer to walk into one of its stores and purchase high-ticket items without building first his or her consumption reputation.
• Expensive Stock Price: A notable disadvantage of Hermès stock is its price which has traded at more than $2000.00 since February 2024. Note that Nvidia trades around $900.00 and Apple trades around $170.00 to $190.00. A single share in Hermès means owning several shares in a large-cap tech company or several mid-cap companies.
• Cyclical Stock Qualities: Take note that luxury companies are generally resilient to short-term economic downturns but can struggle in longer-lived recession. These companies are also affected by seasonal trends in which sales tend to be high during a certain period in a given year. This is the reason why Hermès stock is still a cyclical stock.
