LVMH is 46% below its peak: revenue down, margin surprises. A turnaround or a trap for the patient?

On Monday, July 27, after the close, the world's largest luxury group reported first-half results, and the market greeted them with visible relief. LVMH shares $MC added about 4 percent the next day from Monday's closing price of 466.80 euros. On paper, the company reported revenue 3 percent lower than last year.

That discrepancy is quite telling for today's LVMH. The group, which as recently as 2023 was earning 30.33 euros per share and was Europe's most valuable publicly traded company, ended last year at 21.85 euros. Meanwhile, the stock has tumbled from a peak of 904.60 euros to around 485. That's a drop of about 46 percent, while profit fell by 28 percent. So the market has not only written down the earnings but also the multiple it is willing to pay for them.

What is interesting, though, is what lies beneath the surface of the first-half numbers. Organic growth accelerated to 3 percent in the second quarter, watches and jewelry added 11 percent, Louis Vuitton and Christian Dior returned to positive figures, and the operating margin held at 22.5 percent, thus above what analysts had expected. The entire gap between reported and organic figures was caused by currency rates, which knocked five percentage points off revenue and nearly 700 million euros off operating profit.

The question the market has been asking since the start of 2024 thus remains on the table in a slightly different form. Is LVMH a cyclical company whose cycle is now turning? Or is it a structurally slowing giant whose main divisions will never again deliver margins from the 2021-2023 period, and the current valuation is therefore still more of a trap than an opportunity?