Picture this.

You walk into an exclusive boutique on Madison Avenue.

The air is laced with luxury—a melange of rich leather and opulent scents.

Shelves display meticulously crafted treasures, each with a story of heritage and grace.

That's the world you'll step into as an investor in today's hidden gem.

Welcome to the Hermès experience.

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What does Hermès do?

Hermès International S.A., founded in 1837, is a French luxury goods manufacturer renowned for its leather goods, lifestyle accessories, home furnishings, perfumery, jewelry, watches, and ready-to-wear. The company's iconic products, particularly the Birkin and Kelly bags, have become synonymous with exclusivity and craftsmanship in the luxury sector.

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How does the industry look like?

The global luxury goods market is set to hit $392.4 billion by 2030, growing at a 5.4% CAGR (Fortune Business Insights, 2023) driven by rising disposable incomes among the world elites, especially Asia, and a thirst for lavish experiences.

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Does Hermès have a moat?

Most people only see the surface of luxury brands. But behind the scenes, Hermès is in a league of its own. It's the luxury brand among the luxury brands.

Here are the 5 key elements that make Hermès' moat unbreachable:

1. Exclusivity: Hermès embodies elegance and exclusivity, exemplified by its Birkin and Kelly bags. Available in limited supply and after years-long waits, only to those with established brand relationships, these items create unmatched prestige.
2. Craftsmanship: Handcrafted in France, Hermès products prioritize quality over quantity, offering a luxury experience beyond mere ownership.
3. Loyalty: Loyal customers value Hermès' heritage and quality, driving steady demand and economic resilience.
4. Financial Strength: With high returns, strong margins, and substantial cash reserves, Hermès is ready to thrive in any market.
5. Limited Production: Hermès' controlled production ensures rarity, upholds quality, and protects its brand value and pricing power.

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What does science say about Hermès?

Quantitative science has spoken: Hermès is poised to beat the market in the next 3 years. Let's dive into the data-backed reasons why:

• Profitability: The company has industry-leading profit margins (71% gross profit margin vs. ~60% of competitors) and return rates (30% ROE vs. ~20%), indicating pricing power and efficiency. It is more profitable than 99% of companies in the Luxury Goods industry.
• Growth: Because of the scarcity of first-hand Hermes products, second-hand articles sell for up to three times their retail price. With such a high demand, Hermès could increase its revenue for decades by simply raising prices, even if volumes remained stable. Indeed, despite very reasonable annual price increases of 5 to 10%, sales continue to rise by 15 to 20% per year. Hermès outperforms 87% of its competitors in terms of growth.
• Investor friendliness: Hermès pays a modest dividend yield of about 1.2% and takes a cautious approach to equity dilution, issuing only 0.2% of new stock per year. This strategy protects shareholders from dilution while positioning Hermès ahead of 55% of its competitors in terms of shareholder retribution.
• Health: Hermès has a strong financial position, with just €2.4 billion in debt compared to €10.6 billion in cash and equivalents. This strong liquidity buffer offers significant protection against external economic fluctuations. It outperforms 41% of its industry peers in terms of health.
• Value: Hermès, like any exceptional business, is not cheap. The stock is currently trading at around 50 times price-to-earnings, slightly lower than its five-year average of 56.6 and significantly lower than its peak of ~100x in 2021. When growth is taken into account, the valuation appears to be much more appealing. Hermès has a PEG ratio of 2.0, which is highly desirable for a company with such promising long-term prospects and terminal value. All in all, it's more expensive than 97% of its competitors.

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Why might you want to invest in Hermès?

Hermès' unmatched brand strength, consistent financial performance, and promising growth potential make it an attractive opportunity. Exclusivity and limited production ensure high demand and premium pricing for iconic products like the Birkin and Kelly bags. Its pricing power drives strong financial results and high profit margins. Hermès is a good long-term luxury investment due to its growth and resilience.

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What could go wrong with Hermès?

Investing in Hermès comes with its share of risks. While I believe the company's high valuation is justified, it could limit future returns. Additionally, the luxury market is intensely competitive, with giants like LVMH and Kering posing a threat to Hermès' market share. Moreover, as a family-owned business, Hermès might encounter uncertainties regarding its future leadership and strategic direction.

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In a nutshell

Hermès' brand power, craftsmanship, and strategic exclusivity make it an attractive investment. Its strong financial performance, impressive profit margins, and resilient business model make it a luxury market leader. Hermès is a great, albeit expensive, long-term investment for luxury and timeless elegance fans.

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A Personal Note

I've always admired how tradition and craftsmanship come together in some true-luxury items. While I don’t often indulge in such luxuries myslef, I appreciate the story, dedication and artistry behind handcrafted products like those from Hermès.

For me, investing in Hermès is more than just a financial move. It’s a chance to connect with a brand that embodies tradition and elegance.

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If you want to buy...

You have two ways to invest in Hermès: You can purchase the ADR (ticker HESAY) on the American OTC market, or you can buy shares directly on the Paris Stock Exchange under the ticker RMS.

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3 Important Things to Know About These Emails

1. Success Rate: Let’s set the record straight from the beginning—not every stock I recommend will be a winner. I estimate about 60% will deliver positive returns, and that should be enough to build a portfolio that beats the S&P500.

2. Selection Process: I'm not personally investing in each and every one of these stocks. These picks are driven by quantitative analysis and may not always pass my qualitative tests.

3. Updates: I'll provide frequent (probably quarterly) updates on how an equal-weighted portfolio of these stocks performs for full transparency.

As always, please remember this isn't investing advice—make sure to read our disclaimer​​. Invest at your own risk.