Prada Spa (1913:HK), one of the most famous high-end luxury retailers, has saw its share price fell close to 40% since its peak of HK$80 per share. Is it a bargain now? Let us do a case study.
What is Prada?
Prada Group is a brand owner and a luxury retailer. It distributes and retail brands such as Prada, Miu Miu, Church’s and Car Shoe globally. Although it is a brand owner, much of its sales is still done by the group themselves through their Directly Operated Stores (DOS). From its latest report, it has a total of 556 DOS and it has been adding stores over the past few years. In fact, 83.3% of its net sales is done through its DOS. The rest is sold through its independent customers and franchises.
Prada is a multi-brand group, but more than 80% of its sales is achieved through its “Prada” brand and more than 95% of the sales is coming from just two brands: “Prada” and “Miu Miu”.
The opportunity of Prada SpA continues to be great. As one of the largest luxury retailer in the world, it holds strong brand equity that has products that is widely sought after. The company sold Euro 3.6billion worth of revenue in its last financial year.
As the global population becomes more affluent, demand for their products should tend to increase as well. Urbanization and a more globalized world can help spread the desire for Prada’s products and the long term prospect for the company remains bright as long as it managed its brand equity prudently.
One of the most obvious risk for the company is, even after the drastic fall of its share price, the company is still trading at 22.3 times price to earnings ratio. Investors looking at investing into Prada might need to stomach the high valuation as well.
Secondly, many invest in high end luxury retailers hoping to get exposure to the growing affluent of the people in Asia. However, compared to other brands, Prada is already quite well established in Asia Pacific, with more than 35% of its sales coming from this region. This make Asia Pacific the largest market for Prada. With already the majority of its revenue coming from this part of the world, some might feel that the growth prospect of Prada might not be as great as other premium brand retailers.
Value In Action
There is no telling how low the share price of Prada SpA might go. However, from a business point of view, Prada might be one of the most well-known luxury brand in the world. Bargain or no bargain, it is likely highly that Prada will remains one of the major player in this industry for many years to come.Join us on Facebook for more exciting updates and discussion about value investing. Submit your email address for important market updates and FREE case studies!We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded. The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned above.