We recently compiled a list of the Top 10 Luxury Stocks According to Analysts. In this article, we are going to take a look at where Capri Holdings Limited (NYSE:CPRI) stands against the other luxury stocks.
The luxury retail industry is facing significant challenges, with major brands like Burberry, Hugo Boss, and Gucci experiencing substantial drops in their profits. The decline in luxury sales, especially in Asia and the Americas, has been a major concern, with Burberry and Hugo Boss seeing notable decreases in their revenue. Other brands such as Richemont and Swatch have also reported significant downturns in sales, particularly in China. The overall luxury market index has seen a sharp decline, which indicates widespread struggles in the sector.
Luxury brands have traditionally relied heavily on Chinese consumers, who have contributed significantly to their growth. However, the slowing Chinese economy and a cautious consumer base have led to reduced spending on luxury goods. The economic slowdown in China is attributed to factors such as lower land sales, an aging population, and decreased exports.
Despite the challenges, some brands made significant strides such as the Italian high fashion women’s clothing and accessory brand, Miu Miu, which saw a nearly 60% growth last year and a 90% growth in the first quarter of this year. This helped its parent company, Prada Group, increase its sales as well.
The luxury market has historically bounced back from downturns, and many in the industry hope that the current challenges are temporary. However, the recent performance has reminded the sector that luxury items are not immune to economic challenges, and consumer demand can fluctuate based on economic conditions and consumer confidence. Nevertheless, luxury brands are comparatively less affected by the economic conditions as most of their purchases are made by a very small group of elite consumers. You can also read our article on Top 11 Luxury Clothing Stocks to Invest in Now, where we discussed luxury consumer behavior in detail.
Our Methodology
For this article, we made a list of nearly 20 luxury stocks with at least Moderate Buy ratings according to analysts and narrowed our list to 10 stocks with the highest average analyst price target, as of August 5. We also added the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds as of Q1 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A glamorous woman with a leather handbag enjoying a shopping experience in an upscale boutique.
Capri Holdings Limited (NYSE:CPRI)
Average Price Target Upside as of August 5: 31.6%
Number of Hedge Fund Holders: 55
Capri Holdings Limited (NYSE:CPRI) is a multinational fashion holding company that owns several luxury brands, including Michael Kors, Versace, and Jimmy Choo. In August 2023, Tapestry, Inc. (NYSE:TPR), known for its brands like Coach New York and Kate Spade, agreed to acquire Capri Holdings (NYSE:CPRI) for $8.5 billion ($57 per share).
However, this acquisition faces regulatory scrutiny, with concerns raised by the U.S. Federal Trade Commission (FTC) regarding potential reductions in market competition and impacts on labor conditions. The outcome of this acquisition is anticipated to shape Capri’s (NYSE:CPRI) future trajectory as it seeks to expand its global footprint and maintain its competitive edge in the luxury fashion industry.
While the regulatory issues remain a concern for Capri (NYSE:CPRI), some analysts and experts are optimistic about its future regardless of the outcome. On June 25, Wells Fargo upgraded Capri (NYSE:CPRI) to Overweight from Equal Weight with a price target of $43. The firm thinks that the company’s stock price is too low compared to its real value. The stock is trading much lower than the $57 per share that Tapestry (NYSE:TPR) is offering.
Wells Fargo thinks there are three possible outcomes. The first one is that Tapestry (NYSE:TPR) wins a legal battle with the FTC, and Capri (NYSE:CPRI) shareholders get $57 per share. The second scenario is that if the deal falls through, the company might sell off its brands like Versace and Jimmy Choo and just keep Michael Kors.
The third is that Capri (NYSE:CPRI) could sell all its assets and not be bought by Tapestry. In all these cases, Wells Fargo believes the company’s stock has a lot of potential to increase in value.
In Q1, 55 hedge funds had stakes worth $1.05 billion in Capri Holdings (NYSE:CPRI). Pentwater Capital Management is the most significant shareholder of the company with 3.85 million shares worth $143.148 million.
Overall CPRI ranks 7th on our list of the best luxury stocks to buy. You can visit Top 10 Luxury Stocks According to Analysts to see the other luxury stocks that are on hedge funds’ radar. While we acknowledge the potential of CPRI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CPRI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.