We came across a bullish thesis on Ermenegildo Zegna N.V. (ZGN) on Substack by DB_Silver_Fox. In this article, we will summarize the bulls’ thesis on ZGN. Ermenegildo Zegna N.V. (ZGN)’s share was trading at $7.82 as of Nov 26th. ZGN’s trailing P/E was 19.20 according to Yahoo Finance.
Sorbis/Shutterstock.com
The Ermenegildo Zegna Group (ZEGNA) is a standout luxury brand with a vertically integrated model and a sophisticated portfolio comprising Zegna, Thom Browne, and Tom Ford. Known for timeless quality over fleeting fashion trends, ZEGNA’s Filiera vertically integrates the supply chain, providing the group with independence from third-party suppliers and reinforcing its competitive moat. This strategy, paired with the company’s designs and high-margin luxury positioning, ensures resilience and operational strength. Horizontal growth through focused acquisitions, such as Thom Browne and Tom Ford, aligns with ZEGNA’s long-term vision, creating a cohesive brand ecosystem.
Financially, ZEGNA demonstrates consistent strength. Gross margins normalized above 60% post-COVID, supporting a 10% EBIT margin, even as net margins fluctuated due to restructuring charges during its transformation into a public company. With normalized free cash flow (FCF) of €220 million annually against an enterprise value of €2.7 billion, ZEGNA offers an attractive 8% FCF yield. Its robust balance sheet further underscores its stability, with cash and cash equivalents covering 93% of short-term interest-bearing liabilities, and a working capital structure reflecting significant bargaining power—clients pay in 40 days on average, while suppliers are paid in 115-120 days.
As the luxury industry remains resilient, fueled by enduring consumer desires for recognition and exclusivity, ZEGNA is well-positioned for sustained growth. The integration of Tom Ford’s margins and its vertically aligned operations could unlock further profitability, while its strategic independence from suppliers and strong brand equity mitigate external risks. Current market pricing undervalues ZEGNA’s long-term potential, treating the luxury sector as though it faces an “end-game scenario.” For patient investors with a multi-year horizon, ZEGNA offers a compelling opportunity, with its vertically integrated model and iconic brands providing both security and upside in an evolving global luxury market.
Ermenegildo Zegna N.V. (ZGN) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 13 hedge fund portfolios held ZGN at the end of the third quarter which was 9 in the previous quarter. While we acknowledge the risk and potential of ZGN as an investment, our conviction lies in the belief that some 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 ZGN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.