Hermès, LVMH or Kering: which luxury stock to buy in 2026?
2026-07-24 · By Lubin Danilo, founder of Lubin Investment
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Hermès shows the best fundamental quality of the three but trades at more than twice my reasonable buy price. LVMH is solid but slowed by a sharp drop in Asia ex-Japan sales. Kering trades cheapest of the three, but for real reasons: near zero margin, heavy debt, and a turnaround plan still in its early days. None of the three is cheap by my strict model.
Three French flagships, three radically different profiles
Hermès, LVMH and Kering share the same label, French luxury, the same Paris stock exchange, and often the same mental shelf in investors' minds who treat them as a single block. That is a mistake. Run through my quality and price filter, the three tell almost opposite stories: Hermès is one of the most profitable companies I track, across all sectors, but its price never reflects an opportunity by my strict model. LVMH remains a solid empire, but its biggest division shows signs of fatigue. Kering, the cheapest of the three on paper, is cheap for reasons worth understanding before rushing in.
Hermès: the near perfect cash machine that is never cheap
On my standard 12 criteria model, Hermès validates 7 points, driven by figures that impress: a net margin of 28.3%, sales growth of 11.3% a year on average over five years, no net debt, and above all a cash return on invested capital (Cash ROCE, which measures how much cash a company generates for each dollar of capital it employs) of 46.6%, one of the highest figures I encounter across my entire coverage. In practical terms, for every euro of capital tied up in the business, Hermès pulls out nearly 47 cents of cash every year, a level very few companies in the world reach.
The mechanism behind this number is pricing power (the ability to raise prices without losing customers), and Hermès practices it almost uniquely in the sector: in 2026, the price of the Birkin 30 in Togo leather went from $13,900 to $14,900 in the United States, up 7.2%, and the Birkin 35 climbed from €10,600 to €11,600 in Europe, up 9.4%. And yet demand is accelerating rather than softening: on the resale market, Birkin and Kelly bag sales grew 44% in 2025 versus 2024, and 55% since 2023, with the average resale price up 35% in 2025 alone. A company that raises its prices and sees secondhand demand strengthen further does not have a desirability problem, it has the opposite: organized scarcity, maintained through waiting lists and production deliberately limited to craftsmanship that does not industrialize easily.
The flip side of this exceptional quality is the stock price. The P/FCF (share price divided by free cash flow generated per share) comes out at 41.9 times, one of the highest in the luxury sector I track. My reasonable buy price model puts the entry point at €728.49, against a current price of €1,681, more than twice the price I would judge reasonable. This is not a market anomaly: it is the normal price of a quality the market knows is rare and refuses to discount, even during sector downturns.
LVMH: the solid empire, slowed by China
LVMH scores the same as Hermès (7 out of 12), but for very different reasons. Net margin (13.5%) and five year sales growth (only +0.7% a year on average, near stagnant) are notably weaker than Hermès. On the other hand, the price is very different: a P/FCF of 17.4 times, one of the more reasonable in the luxury sector, with net debt limited to 1.97 years of free cash flow, a controlled level for a group that owns an immense network of directly operated stores around the world.
Recent news explains why the market stays cautious on future growth. In the second quarter of 2026, LVMH reported sales of €20.98 billion, below analyst consensus (€21.6 billion), with organic growth of only 1% year over year, slowing from 3% in the first quarter. The most concerning point comes from Asia excluding Japan, where sales fell 14% for the quarter, a decline worsening from 6% the prior quarter, while Japan grew, driven by an influx of Chinese tourists buying locally rather than at home. The Fashion and Leather Goods division, the group's largest, grew only 1% organically in the first half, with operating profit down 6%. This is the heart of the slowdown: Chinese luxury shoppers, the historical growth engine of global luxury, are buying less, or buying elsewhere, and the group's core business (ready-to-wear and leather goods) absorbs it directly.
What LVMH's diversification provides, however, is a shock absorber that neither Hermès nor Kering has to the same degree: the group combines fashion and leather goods, wines and spirits, watches and jewelry, perfumes and cosmetics, and selective retailing (Sephora), so a slowdown in one division never fully passes through to the whole. That is also what explains a more reasonable valuation than Hermès: the market pays a more measured price for a more diversified but currently less dynamic machine.
Kering: the cheapest of the three, for real reasons
Kering is by far the most fragile name of the three by my model, validating only 4 out of 12 criteria. Net margin comes in at 0.5%, essentially nil: out of every €100 of sales, barely 50 cents end up as net profit. Sales growth has been declining 10.3% a year on average over five years, and cash return on invested capital reaches only 8.9%, well below the other two. Above all, net debt reaches 6.1 years of free cash flow, a heavy level that deserves explanation rather than a bare citation.
The mechanism behind this debt is not an operating problem: Kering spent roughly €4 billion in recent years buying, outright, iconic buildings on the most expensive shopping streets in the world (nearly $1 billion for a Fifth Avenue building in New York, €1.3 billion in Milan, and several locations on Rue de Castiglione and Avenue Montaigne in Paris). The original idea was to secure its flagships for the very long term and build a prestige real estate portfolio. But buying real estate rather than leasing it ties up enormous amounts of capital, and this debt weighs all the more heavily as the group's sales decline at the same time: the group ended 2025 with €8.04 billion in net debt, down from €10.5 billion a year earlier, a real improvement, but starting from a very high level.
New CEO Luca de Meo, who arrived from the automotive industry where he had already orchestrated Renault's turnaround, presented his 'ReconKering' plan on April 16, 2026: targeting more than double the 2025 recurring operating margin (11.1%) and a return on capital employed above 20% in the medium term, over a three phase plan running to 2030 (structural reset by end of 2026, reconstruction through 2028, return to competitive leadership by 2030). To fund this turnaround without being constrained by debt, he has already sold the group's beauty division (Kering Beauté) to L'Oréal for €4 billion in March 2026, and is preparing a partial divestment of the real estate portfolio. On the product side, Demna (former Balenciaga artistic director) was named artistic director of Gucci, the brand that weighs most in the group's results and that most needs a fresh creative direction.
This is what makes Kering's P/FCF (13.6 times, the lowest of the three) misleading if read alone. A low multiple can signal a bargain, or it can signal that the market anticipates further earnings deterioration: both show up as the same number. My reasonable buy price model, which accounts for the current fragility of earnings and the weight of debt, puts the entry point at only €36.18 against a €252.30 share price, a stock judged seven times too expensive despite its seemingly cheap P/FCF. The real bet on Kering is therefore not a valuation bet, but a bet on the execution of Luca de Meo's plan over the coming years.
The comparison table
| Criterion | Hermès (RMS) | LVMH (MC) | Kering (KER) |
|---|---|---|---|
| Quality score | 7 out of 12 criteria | 7 out of 12 criteria | 4 out of 12 criteria |
| Valuation (P/FCF) | 41.9x annual cash | 17.4x annual cash | 13.6x annual cash |
| Net margin | 28.3% | 13.5% | 0.5% (near nil) |
| Sales growth (5 years) | +11.3%/year | +0.7%/year (near stagnant) | -10.3%/year (declining) |
| Cash return on capital (Cash ROCE) | 46.6% | 16.5% | 8.9% (below my threshold) |
| Net debt / free cash flow | Positive net cash | 1.97 years of cash | 6.1 years of cash (heavy) |
| Market capitalization | roughly €176 billion | roughly €247 billion | roughly €31 billion |
| Reasonable buy price vs current price | €728.49 vs €1,681 (2.3x too expensive) | €244.66 vs €495.10 (2.0x too expensive) | €36.18 vs €252.30 (7.0x too expensive despite a low P/FCF) |
So, which one to choose?
None of the three is buyable by my strict model today, but the nature of the premium differs profoundly, and that is where the real decision plays out. On Hermès, you pay for near unmatched quality, pricing power demonstrated year after year, but a price that has statistically never offered a real discount, even during sector downturns: the risk is not that quality deteriorates, it is paying a premium that never really compresses. On LVMH, you pay a more reasonable price for diversification that cushions shocks, at the cost of growth currently held back by China: the bet is that Chinese luxury spending recovers, which remains uncertain at this stage. On Kering, you pay the lowest price of the three, but the price of a turnaround still in its early days, led by an executive who has already succeeded at this kind of mission elsewhere, with no guarantee he pulls it off here.
If I had to sum up the choice: Hermès suits whoever seeks the purest quality and accepts paying for it without ever expecting a sale; LVMH suits whoever wants diversified luxury exposure at a more measured price, betting on a Chinese rebound; Kering suits only whoever is willing to bet on the execution of a multi year turnaround plan, with the real risk that the Gucci brand takes longer than expected to recover. You can find the full breakdown of each on their respective analysis pages (Hermès, LVMH, Kering), and my full methodology.
- Hermès (7/12): the best quality of the three (Cash ROCE 46.6%, no debt), proven pricing power (Birkin +7 to +9% in 2026, resale +44% in a year), but a P/FCF of 41.9x that makes it 2.3 times more expensive than my reasonable buy price.
- LVMH (7/12): solid and diversified (6 businesses that cushion shocks), but slowed by China (Asia ex-Japan -14% in Q2 2026, fashion and leather goods near stagnant). More reasonable valuation (17.4x) but still 2 times my recommended buy price.
- Kering (4/12): the cheapest of the three (13.6x), but for real reasons: near nil margin, debt of 6.1 years of cash tied in part to €4 billion of flagship real estate purchases. A new CEO (Luca de Meo) launched a 5 year turnaround plan ('ReconKering'), already partly funded by selling Kering Beauté to L'Oréal.
- None of the three is buyable by my strict model today: the nature of the premium differs (rare quality never discounted for Hermès, Chinese slowdown for LVMH, execution bet for Kering).
FAQ
Why is Hermès so expensive despite excellent quality?
The market knows its quality is rare: 28.3% net margin, 46.6% Cash ROCE, no debt, and proven pricing power (Birkin bag prices rose another 7 to 9% in 2026 without denting demand). Quality this rare is almost never discounted, even during sector downturns.
Why are LVMH's sales slowing down?
The decline comes mostly from Asia excluding Japan, where sales fell 14% in the second quarter of 2026, as Chinese shoppers, historically the growth engine of global luxury, buy less or buy elsewhere. The Fashion and Leather Goods division, the group's largest, grew only 1% organically in the first half.
Why does Kering carry such heavy debt?
A good part comes from outright real estate purchases of flagship stores on the most expensive streets in the world (Fifth Avenue in New York, Milan, Paris), roughly €4 billion in total, rather than leasing. This debt weighs all the more as the group's sales decline at the same time.
Is Kering's low P/FCF (13.6x) a good deal?
Not necessarily: a low P/FCF can signal a bargain or anticipate further earnings deterioration. With a near nil net margin (0.5%) and debt of 6.1 years of cash, my reasonable buy price model judges the stock still seven times too expensive despite this seemingly cheap multiple.
Should I buy Hermès, LVMH or Kering in 2026?
None of the three is buyable by my strict model today. Hermès for the purest quality without ever expecting a discount, LVMH for diversified exposure betting on a Chinese rebound, Kering for whoever accepts an execution bet on a multi year turnaround plan. This is not personalized investment advice, do your own research.
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About the author
Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).