PARIS — European luxury stock valuations are high, outpacing U.S. luxury stocks, so investors should be selective, RBC Capital Markets said in a research note to clients on Monday.
The analysts say to favor “quality” companies that are leading the market and have scale, citing LVMH Moët Hennessy Louis Vuitton, Compagnie Financière Richemont, Kering and Moncler as their favorite investments in Europe. Meanwhile, in the U.S., they recommend buying Canada Goose and Ralph Lauren, as well as Lululemon.
European luxury shares trade at an around 100 percent premium to U.S. peers, which is well above the historical premium of 40 percent, noted RBC. The European shares are trading above historical price-to-earnings ratios of the past decade, while U.S. luxury stocks are trading below theirs.
Looking at the ratio of enterprise value to earnings before interest and tax, European luxury shares are at a level of 20 times versus a long-term average of 16, the analysts said.
European multibrand and monobrand luxury stocks look expensive, except for Swatch Group, they added, singling out Hermès International, Prada Group, Burberry, Salvatore Ferragamo, Tod’s and Moncler.