Asked by Ashley Soto  |  Submitted December 16, 2015

Why are luxury brand stock shares less expensive than non-luxury brands/companies?

I get that less people can afford luxury items, but what does that mean for investors?

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  Answers  |  2

December 29, 2015

This is a very broad question. Perhaps your perception is true for some industries and not others? The single greatest variable will be expected earnings growth. Perhaps the brands you perceive as luxury are more established, niche players with growth challenges, while newer, smaller upstart participants seem to have more growth potential relative to their size. I’d like to address the issue in greater detail if you could offer more specific examples. My intuition suggests luxury brands have more pricing power, which should translate into larger, more stable margins, potential for brand extension, and a share price premium compared to more marginal market participants.
One current factor that may contribute to your perception is the effect of a falling yuan on the world’s largest group of luxury shoppers, the Chinese. When their currency loses value, imported luxury goods become more expensive, so they buy less. U.S. based companies that cater to foreign buyers are hurt by the strong dollar.

$commenter.renderDisplayableName() | 09.26.17 @ 06:01

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April 02, 2016

Hi Ashley,

It's not the category itself that is more/less, It is the intrinsic value of the firm itself that has meaning for investors. In the short run, the market acts like a voting machine. Over the long term, the market acts as a weighing machine. This works in both the macro & the micro.

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$commenter.renderDisplayableName() | 09.26.17 @ 06:01

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