Investors Should Warm Up to Moncler
Moncler wants to join an elite group of companies that sport valuations as luxurious as their products. Investors will probably welcome it to the club.
The Italian company, known for down jackets with an Alps-chic look, plans an initial public offering of shares that are set to begin trading in Milan on December 16. Assuming earnings grow 25% next year, around the recent average, the stock will have a multiple of 20 times forward earnings if it prices at the top of its range, valuing the company at about €2.5 billion.
For the stock to rise further, investors need to find Moncler's business as appealing as other single-brand luxury companies frequently rumored to be takeover targets. Leatherwear company Salvatore Ferragamo SpA, for instance, trades at 28 times consensus forward earnings and rival Tod's SpA commands a multiple of 22.2 times.
One attribute Moncler shares with Ferragamo and Tod's is an impressive growth outlook. Assuming Moncler continues to add about 20 stores a year and maintains a respectable performance at existing locations, it should easily achieve double-digit percentage sales growth for the next few years.
Indeed, Moncler has proven able to open stores even in locations that rarely see cold weather, such as Sao Paulo and Taipei. And the company has a long way to go in other major luxury markets like the U.S., where it only generates about 10% of its sales.
Another advantage for Moncler is that it has few direct competitors. Many of the company's down jackets sell for $2,000 or more. While some luxury companies like Brunello Cucinelli offer such "puffer" jackets at similar prices, none are as focused on style as Moncler.
Moncler's strong brand should also help it diversify further into accessories like gloves and scarves. Jackets currently account for about 85% of revenue, suggesting the company is still in the early stages of developing new products.
Skeptics may argue that Moncler is vulnerable to warm winters, much like a ski resort that depends on snowfall. True, that may add some volatility to stock. But only a consistent and significant increase in temperatures should imperil long-term sales, causing angst to investors and environmentalists alike.
With so much potential to grow over the next several years, and takeover talk around bite-sized luxury names likely to persist, investors are likely to warm up to Moncler in a hurry.