Stock market: A decline in LVMH shares is expected

After a satisfactory 2020 balance sheet despite the economic context and a high valuation at the beginning of the year, the number one luxury goods company risks seeing its shares fall according to technical analysis.

The French luxury giant LVMH got off to a good start in 2021, after admirably resisting the rebounds related to the Covid-19 crisis which paralyzed the global economy and more specifically the luxury sector in 2020.

Despite a net profit that declined by 34% over one year, i.e. a reduction of nearly a third of its profit, followed by a decline in operating margin, the co-CEO of Bordier & Cie, Patrick Guérin, believes that the figures presented on Tuesday 26 January by the LVMH group are “very solid”.

Patrick Guérin said that the luxury group delivered an operating profit well above analysts’ expectations, as well as free cash flow (cash flow from operations after investments) of 6 billion.

If LVMH can boast a positive balance sheet, it is due in part to the reduction in communication and overhead costs, as well as the downward renegotiation of rents, according to Antoine Fraysse-Soulier, head of market analysis at eToro. He also reports that the valuation of the LVMH Group is already “very high”.

The CEO of LVMH, Bernard Arnault, emphasized “remarkable resilience in the face of the unprecedented health crisis that the world is going through“.

Investors plan to closely monitor the integration of the American jeweler Tiffany, which could prove to be successful. Technical analysis suggests that the share price of the giant LVMH follows an upward trend at an average of 100 sessions. Nonetheless, caution must be exercised, since the trend is approaching the upper bound of a broad, long-term uptrend channel, on a logarithmic scale.

According to the multinational Factset, analysts are aiming for a 61% increase in net earnings per share in 2021. The share is currently worth 34 times this value and the free cash flow return is only 1.2%, so one would have to wait for the downturn before investing in the stock.