Bottom Fishing = Gucci and YSL saleTechnical Analysis:
Inverse head and shoulders sent this luxury brand conglomerate to the post Covid bull market highs. But we are in the midst of a rapid decline, with over a 70% drop in stock value. I expect us to start finding support at the key horizontal levels as Kering aims to implement cost cutting measures to slow the sinking ship. This should bring better value to stock holders who believe in the long term sustainability of this French luxury giant.
Fundamental Analysis:
**Bull Thesis on Kering (KER)**
Kering, a major player in the luxury goods sector, owns high-end brands such as Gucci, Saint Laurent, Bottega Veneta, Balenciaga, and Alexander McQueen. Despite the prestige of these brands, Kering’s stock has experienced a steep decline of over 70% from its peak, leading to its current valuation as a potentially undervalued opportunity in the luxury market.
1. Chinese Consumer Demand Already Priced In: Concerns about reduced demand from Chinese consumers due to economic slowdowns have contributed to Kering’s significant stock drop. However, these risks appear largely priced in, as the market has already discounted the stock heavily, reflecting worst-case scenarios. Luxury demand in China, while affected by economic uncertainty, remains a key part of Chinese culture, and with the start of new stimulus from the Chinese government, spending in the luxury sector could rebound.
2. Moat and Brand Power: Kering’s portfolio includes some of the world’s most iconic luxury brands. Gucci, in particular, is known for its enduring appeal, while brands like Saint Laurent and Bottega Veneta appeal to high-net-worth consumers globally. This brand recognition forms a durable moat, giving Kering pricing power and customer loyalty in the luxury space, even as spending patterns fluctuate.
3. Global Liquidity Cycle Upside: Central banks, particularly in the U.S. and China, have shown a willingness to intervene through stimulus measures during economic slowdowns. Should we see another global liquidity injection or stimulus cycle, Kering’s luxury products could benefit as high-net-worth individuals increase discretionary spending. Luxury stocks tend to outperform during these cycles as increased liquidity fuels consumer confidence and spending power.
4. Cost-Cutting Initiatives: Kering has also taken proactive steps to streamline operations and cut costs, which could stabilize margins even if revenue remains under pressure. These measures could position Kering to see greater profitability when demand eventually recovers, leveraging both improved efficiency and brand strength.
With high-end brands, a recognized moat in luxury, and operational improvements underway, Kering offers an appealing opportunity as it trades at a discount to its historical value. The luxury sector's resilience, combined with central bank actions and Kering’s cost-saving strategies, may set the stage for a compelling rebound in the stock price.
I will be looking to add as price finds a base and at the first sign of a reversal in a strong downtrend.
Not financial advice
