Is Hermès International (ENXTPA:RMS) Too Expensive at 14.15x Price To Sales?


Hermès International (ENXTPA:RMS) is currently trading at $813.60, at approximately 98.9% of its 52-week high of $824.60. With the stock price up 30.9% in the last year, investors are worried that the company is getting too expensive. So, is Hermès International Société en commandite par actions overvalued? In this article, we’ll discuss Hermès International Société en commandite par actions’s valuation using different valuation models.

Historical Valuation

One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.

Considering Hermès International Société en commandite par actions’s latest twelve months revenue/share of $58.19 and using the company’s 5-year average price to sales of 9.06x as a benchmark, we have a fair value of $527.36, which is -35.2% lower than the current price.

With no surprise, we can see that Hermès International Société en commandite par actions’s price to sales of 14.1x is much higher than its 5-year average of 9.1x, indicating that the company is probably trading in overbought territory. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.

Source: Finbox Chart Engine

Absolute Valuation: Hermès International DCF Analysis

Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.

So, let’s analyze Hermès International Société en commandite par actions with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 5.6%, an average EBITDA margin forecast of 38.5%, a discount rate of 8.0%, and a terminal EBITDA multiple of 28.7x, we get a fair value of $837.2.

So, Is Hermès International Overvalued?

Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.

The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.

According to the estimate, Hermès International’s fair value is $627.04, representing a -23.5% downside from the current price. Below are the fair value estimates for each model.

Source: Finbox Fair Value Estimates

Company’s Profile: Hermès International

Hermès International engages in the production, wholesale, and retail of various goods. The company offers leather goods and saddlery, such as bags for men and women, clutches, briefcases, luggage, small leather goods, diaries and writing objects, saddles, bridles, and a range of equestrian products and clothing; ready-to-wear garments for men and women; and accessories, including jewelry, belts, hats, gloves, the Internet of Things products, and shoes.

It also provides silk and textiles for men and women; art of living products comprising furniture, lighting, plaids, decorative objects, tableware, birth gifts, beach fabrics, furnishing fabrics, and wallpapers; perfumes; and watches. In addition, the company is also involved in weaving, engraving, printing, dyeing, finishing, and producing textiles; and purchasing, tanning, dyeing, finishing, and selling precious hides.

It sells its products through a network of 310 stores, including 219 directly operated stores worldwide. The company also sells watches, perfumes, and tableware through a network of specialized stores and in airport duty-free stores. Hermès International Société en commandite par actions was founded in 1837 and is based in Paris, France. Hermès International Société en commandite par actions is a subsidiary of H51 SAS.

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