In this article, we will look at the Top 11 Luxury Clothing Stocks to Invest in Now. In this article, we will look at where Kering SA (PPRUY) stands against other top luxury clothing stocks to invest in now.
Overall View of Trends in the Luxury Sector
The luxury segment in retail has been a prominent driver of growth in the industry. It is primarily considered a status symbol, driving discretionary spending among customers with high purchasing power.
According to a report by Mordor Intelligence, the luxury retail sector has a market size of $110.13 billion as of 2024, and is expected to grow to $151.32 billion by 2029, at a compound annual growth rate of 6.56%. While the Asia-Pacific region is the fastest-growing market in the luxury retail domain, the largest market remains concentrated in Europe.
According to McKinsey’s The State of Fashion 2024 report, the global apparel industry is expected to experience top-line growth of 2%- 4% in 2024, with variations possible in countries and regions. Quite like in previous years, the luxury segment is anticipated to generate the most significant economic profit.
However, companies in the sector may experience a tough economic environment. Growth is anticipated to slow down to 3%- 5% in 2024 compared to 5%- 7% in 2023 as the post-pandemic shopping rush slows down. However, these growth trends are likely to be contrasting in Europe and the US. While growth is set to slow in China and Europe, it is expected to pick up speed in the US after a relatively weak 2023.
Distribution of luxury apparel and improved supply chains are some of the industry’s significant growth drivers. For example, Saudi Arabia’s General Authority for Competition approved the joint venture between G Distribution B.V. and Al Rubaiyat Co. for Industry & Trade Holding in December 2021 to sell and distribute Gucci products in the country. Digital media and digital marketing are also increasing the popularity of luxury clothing among millennials, which is, in turn, driving market growth.
A Slow First Half of 2024 for Luxury Retailers
Several luxury retailers experienced substantial profit drops in the first half of 2024. The overall market is experiencing widespread struggles, primarily because luxury brands have traditionally relied heavily on Chinese consumers. With the slowing Chinese economy and a cautious consumer base, this heavy reliance is proving unprofitable, as people are reducing their spending on luxury goods. The economic slowdown in China is attributed to factors such as lower land sales, an aging population, and decreased exports.
Despite the challenges, some brands made significant strides, such as the Italian high-fashion women’s clothing and accessory brand Miu Miu, which saw nearly 60% growth last year and 90% growth in the first quarter of this year. This helped its parent company, Prada Group, increase its sales as well.
The luxury market has historically bounced back from downturns, and many in the industry hope the current challenges are temporary. Luxury brands are comparatively less affected by economic conditions as most of their purchases are made by a very small group of elite consumers.
Our Methodology
For this article, we made a list of nearly 20 luxury stocks with positive analyst upside potential and used that as our primary metric to rank the list. We chose the top 11 stocks with the highest average analyst price target as of September 12, 2024. We manually calculated analyst upsides for stocks not listed on American exchanges. We have also considered the hedge fund sentiment around each stock as a secondary metric, and sourced data from Insider Monkey's database of over 900 elite hedge funds as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Top 11 Luxury Clothing Stocks to Invest in Now
Top 11 Luxury Clothing Stocks to Invest in Now
Kering SA (OTC:PPRUY)
Analyst Upside Potential as of September 12, 2024: 1,281.60%
No. of Hedge Funds as of Q2 2024: N/A
Kering SA (OTC:PPRUY) is a France-based company that specializes in luxury products and manages several globally popular Houses in Fashion, Jewelry, and Leather Goods. These Houses include Gucci, Saint Laurent, Balenciaga, Bottega Veneta, Alexander McQueen, Brioni, DoDo, Pomellato, and Ginori 1735, along with Kering Beaute and Kering Eyewear. The Group primarily sells its products through retail stores and is actively working across the globe.
Kering SA holds a significant market presence and reputation for its high-end products. The company underwent a 5.37% compounded annual growth in its revenue over the last three years. It is currently trading at a forward P/E of 15.66, at a 5.91% premium to its sector. Kering SA (OTC:PPRUY) holds a significant competitive advantage due to its brands’ set reputation in the luxury apparel landscape. Its brand names of Gucci, Saint Laurent, and Balenciaga have become global household names. However, the company is experiencing a dip in its earnings due to the overall fall of the luxury market. Overall group revenue for the first half of 2024 came up to €9.0 billion, with sales from the directly operated retail network falling 12% in the first quarter. The primary reason behind these trends is the deceleration in the Asia-Pacific market. Despite this dip, the Group holds significant potential to make a comeback. Free cash flow from the company’s operations remained steadily high at €1.9 billion in the first half of 2024, significantly because of effective inventory management. This excludes real estate acquisitions, including acquiring a renowned property on New York City’s Fifth Avenue. The Group’s free cash flow from operations amounted to €1.1 billion, shedding a positive light on its profitability.
Gucci alone operates around 536 stores as of June 30, 2024. During the first half of 2024, the brand prioritized organic growth by maximizing the productivity of its existing network of stores, closing two in the process. It also undertook efforts to identify opportunities in global distribution, targeting high-growth sales channels and regions. These efforts are set to continue in the second half of 2024, boosting the company’s sales and further establishing it as a leader in the industry. The stock has an analyst upside potential of 1,281% as of September 12, 2024.
Overall, PPRUY ranks first among the top 11 luxury clothing stocks to invest in now. While we acknowledge the potential of luxury clothing companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PPRUY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
