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 Stellantis N.V. (NYSE:STLA) 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 close-up view of a modern automobile with its sleek curves and luxurious body.
Stellantis N.V. (NYSE:STLA)
Average Price Target Upside as of August 5: 51.5%
Number of Hedge Fund Holders: 35
Stellantis N.V. (NYSE:STLA) is a leading global automotive manufacturer that operates several well-known luxury vehicle brands such as Alfa Romeo, Chrysler, DS, and Maserati. The company sells its cars in over 130 countries and has manufacturing facilities in around 30 countries.
It is one of the largest and fastest-growing automotive brands in the world. Stellantis (NYSE:STLA) is committed to innovation and growth, especially through its ambitious electrification strategy and expansion of its product offerings. In Q1, 35 hedge funds had a stake worth $556.400 million in the company.
Even though the latest Q2 earnings were considered a little disappointing by experts and “humbling” according to the company’s management, Stellantis (NYSE:STLA) acknowledged its issues and is working to improve them.
The company’s adjusted operating income (AOI) margin fell to 10%, down from a record 14.4% in the previous year, and industrial free cash flow was negative EUR0.4 billion. The drop in AOI margin reflects higher manufacturing costs and lower volumes, while negative free cash flow was impacted by increased investment spending and working capital fluctuations.
Management is confident in a return to positive free cash flow by the end of the year, with plans to reduce investment spending by at least EUR1 billion in the second half.
On July 31, Nomura analyst Anindya Das upgraded Stellantis (NYSE:STLA) to a Buy rating from Neutral, adjusting the price target from EUR 24 to EUR 21. The upgrade is based on a positive assessment of company management’s commitment to addressing ongoing challenges in North America.
The analyst highlighted that Stellantis (NYSE:STLA) has made significant investments in the first half of 2024. These investments are aimed at launching a series of cost-effective new products in Europe. This strategic move is expected to position Stellantis (NYSE:STLA) more favorably to navigate headwinds from slower sales growth in the European market.
Moreover, the analyst noted that the company’s current share price presents an attractive valuation, which is further supported by a strong dividend yield of 10%. This yield offers a compelling incentive for investors, further supporting the Buy recommendation.
As of August 5, Stellantis (NYSE:STLA) has a consensus Buy rating among 27 analysts. The average price target of $23.84 represents a nearly 51.5% upside to its stock price at current levels.
Overall STLA ranks 6th 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 STLA 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 STLA 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.