LVMH: Louis Vuitton and Dior earn 70% of the profit and shrank in the third quarter, so hold at €387.00

On 47% of the group's first-half revenue, Fashion & Leather Goods earned €6.2 billion of the €8.9 billion profit that the five business groups report before group costs, about 70% of it. That is the division of Louis Vuitton and Dior, and its organic sales fell 5% in the third quarter. At €387.00 the market is paying 18 times my 2026 earnings for it to stop falling, while the rest of the group carries the growth.

At €387.00 on October 30, 2026, LVMH trades 6.0% above my weighted Base of €365.25. The Bear value of €227.94 is 41.1% below the price and the Bull value of €545.49 is 41.0% above it. I assign no probabilities to the cases. A required margin of safety of 35% gives a buy range of €201.83 to €273.00 and a conservative limit of €201.83. The verdict is Hold, and no new money at this price.

Valuation route: a luxury goods group with a very high return on capital, valued on the earnings it can keep growing from five years out and cross-checked on the free cash flow that reaches shareholders after lease payments. Values are present fair-value estimates, not 12-month price targets.

What LVMH is

LVMH owns about 75 brands in five business groups. Fashion & Leather Goods (Louis Vuitton, Dior, Fendi and others) is the profit engine. Wines & Spirits (Hennessy, Moët & Chandon), Perfumes & Cosmetics (Dior and Guerlain), Watches & Jewelry (Tiffany, Bulgari, TAG Heuer) and Selective Retailing (Sephora, Le Bon Marché) make up the rest. The Arnault family controls the group and is its chief executive and chairman.

Two portfolio changes happened in the third quarter: Marc Jacobs was sold to WHP Global on September 1, and most of DFS, the travel retailer, was sold. Both remove low-margin revenue, which is why scope subtracted 2 points from reported growth in the quarter.

The latest results

Reported revenue fell 2% over nine months because the euro strengthened: currency subtracted 3 points and the disposals 1 point. Management said the United States, Europe and Japan grew well in the third quarter and China was weaker. The second quarter was better, with organic growth of 3% (4% excluding the effect of the Middle East conflict).

First-half net profit attributable to the group was €5,697 million, level with last year, and operating free cash flow was €4,100 million, up 2%. Net financial debt fell 19% to €8,245 million. The profit by division matters more than the group total: a division that earns about 70% of the segment profit lost 7% of it, and three of the other four grew.

What the cash flow is made of

• Cash conversion is strong. In 2025 the group generated €24.9 billion of cash from operations before working capital, €18.9 billion after tax, interest and working capital, and €11.3 billion of operating free cash flow after €4.6 billion of investment.
• Operating free cash flow flatters. LVMH's measure comes before the repayment of lease liabilities, which total €16.0 billion on the balance sheet. I deduct an estimated €3.0 billion a year of lease payments and about €0.4 billion of dividends to minority shareholders, which leaves roughly €7.9 billion, or €16 a share. The lease figure is my estimate; the repayment line sits in the financing section I did not read.
• Dividends take most of it. The group paid €6.5 billion of dividends to its own shareholders in 2025, about 82% of my estimate of cash available to them.
• Recurring profit is not operating profit. In 2025 recurring profit was €17.8 billion and operating profit €17.1 billion, after €0.7 billion of other items, so restructuring and impairments are a regular cost.

Debt, shares and financing

The balance sheet is not a risk. Net financial debt is about 0.5 times annual recurring profit before leases, and about 1.4 times if lease liabilities are counted as debt. The share count is falling slowly, which I model at 0.4% a year. I did not read the notes to the 2026 half-year accounts, so the exact share count and any buyback after June are not in the model.

Primary valuation: five-year earnings value

I project revenue, recurring operating margin and earnings per share to 2031, apply an exit multiple to 2031 earnings and add the dividends along the way, all discounted at 9%. Recurring profit converts to net profit attributable to shareholders at 63%, after €0.35 billion of minority interests, which matches 2025. The Base value is €420.00.

• Revenue: €79.6 billion in 2026 (nine months of €57.1 billion plus a fourth quarter 2% below last year's €22.7 billion after currency), then 4% a year. That is organic growth of about 4%, below the high single digits of 2021 and 2022 and above today's 2%.
• Margin: 21.8% in 2026, rising to 23.0% by 2031. The group earned 22.0% in 2025 and 22.5% in the first half of 2026, so the Base assumes Fashion & Leather Goods only partly regains its 2024 profitability.
• Exit multiple: 20 times 2031 earnings. This is below the multiples the group has carried when growth was higher, and it assumes growth of 3% to 4% with very high returns on capital, a business that needs little reinvestment. At the Base path, 2031 earnings per share are 28.2 euros and the exit value is €565 at the end of 2031.
• Terminal share: the exit value is 86% of the Base value over a five-year horizon, just above my 85% test. I accept it because the dividend stream is small relative to the franchise value, and I show the sensitivity below.

Sensitivity of the primary value per share to the 2031 margin (rows) and the exit multiple (columns):

The price of €387.00 sits between the 18 times and 20 times columns at the Base margin. The grid shows how little room there is: a one-point miss on the margin costs about €16 a share, and two turns of multiple cost about €36.

Secondary valuation: free cash flow after leases

Free cash flow to shareholders after lease payments and minority dividends is about €16 a share in 2026 on my estimates. I normalize it to €16.50 for the Base, capitalize it at a 9% required return with 3.5% perpetual growth, and get €310.50. The Bear uses €13.00, 2% growth and a 9.5% return, and the Bull uses €19.50, 4.5% growth and an 8.5% return. At the current price the normalized free cash flow yield is 4.3%.

Growth diagnostic

Organic growth was 2% over nine months and 1% in the third quarter, which is slow for a group the market has valued on double-digit growth for a decade. Currency subtracted 3 points. The growth that exists is structural in Sephora, jewelry and champagne, and cyclical in Fashion & Leather Goods, where demand from Chinese consumers fell. I classify the growth as moderate and the profit as highly concentrated, because one division carries about 70% of segment profit.

Valuation triangulation

• Primary (five-year earnings value): €420.00, weight 50%.
• Secondary (free cash flow after leases): €310.50, weight 50%.
• Divergence between the two: 30% of their midpoint. That is at the 30% line, so I treat it as a flag.
• Weighted Base: €365.25. The honest uncertainty is the range €310.50 to €420.00.

The two methods differ because the first capitalizes earnings after a recovery in margin and values the franchise at 20 times, while the second capitalizes today's cash after leases at about 5.5% net yield. The difference is mostly the lease payments I deducted and the margin recovery. Both values are close to or below the price, so the choice does not change the verdict.

What is the market already pricing in?

The price needs the current 22% margin to hold and the franchise to be valued at 18 times earnings in 2031, which is a fair expectation and not a stretch. That is why the verdict is not Sell. It also means a buyer is paid only the 9% required return, with no margin for the China risk.

Bear, base and bull scenarios

• Bear: revenue growth of 1% a year, the margin sliding from 21.5% to 20.5% as the Fashion & Leather Goods decline persists and costs stay high, and an exit multiple of 16 times. Free cash flow of €13.00 a share growing 2% at a 9.5% required return.
• Base: as described above.
• Bull: revenue growth of 6.5% a year, the margin rising to 24.5% as Fashion & Leather Goods recovers its 2024 profitability, and an exit multiple of 24 times. Free cash flow of €19.50 growing 4.5% at an 8.5% required return.

The discount rate is 9% in the Base and moves one-half point either way in the free cash flow method. The distribution is moderately skewed to the upside, but the Bear case is only 38% below the price because the balance sheet is strong. The business, not the leverage, drives the spread.

How the buy price is set

Confidence is B, which has a default margin of safety of 30%. I add 5 percentage points because the two methods differ by about 30%, so the margin is 35%, applied once to each method.

The entry range is €201.83 to €273.00 and the conservative limit is €201.83. The price is 42% above the top of the range. The range states what I can defend as a margin of safety, not an expectation that the shares will fall there.

Dividend and buybacks

LVMH pays a dividend in two instalments. The interim of €5.50 is payable on December 3, 2026. The group paid €6.5 billion to its own shareholders in 2025, and the share count fell from 497.7 million at year end to about 493 million, so buybacks are small but steady. The dividend is covered by free cash flow after leases, but not by much.

Reasons to own LVMH

• Louis Vuitton and Dior earn a 35% operating margin in Fashion & Leather Goods (2025) on a very large revenue base. Brands of this strength are almost impossible to build.
• Three of five business groups grew organically in the first nine months, one was flat, and Selective Retailing accelerated to 8% in the third quarter.
• Net financial debt fell 19% in a year to €8.2 billion, and the group paid about €13 a share in dividends in 2025.
• Operating free cash flow of €11.3 billion in 2025 was after €4.6 billion of investment in stores and production.
• The group is cutting low-margin revenue (Marc Jacobs, DFS), which lifts the average quality of what remains.

What could go wrong?

• China. Third-quarter weakness in Fashion & Leather Goods came from Chinese demand, and the division earns about 70% of segment profit.
• Currency. The euro subtracted 3 points from nine-month growth and management cites currency as a drag on Fashion & Leather Goods profit.
• Margin. A 1-point lower group margin in 2031 takes about €16 a share off the primary value.
• Multiple. The shares are priced for 18 times 2031 earnings, and luxury multiples have fallen when growth slowed.
• Concentration of control. The Arnault family controls the group, which protects long-term strategy and also limits what minority shareholders can change.
• Acquisitions. Tiffany was a large and expensive purchase, and the group has a record of buying brands at high prices.

Management execution

• Capital allocation has been disciplined in 2026: net debt is down 19%, the weakest low-margin assets (DFS, Marc Jacobs) were sold and buybacks continued.
• Management guided only to confidence and brand desirability, with no numerical outlook for 2026, so there is no target to hold it to.
• Costs are not falling with sales. Recurring profit fell 4% in the first half on organic sales growth of 2%, partly because of currency.
• Recurring profit leaves out other operating items: in 2025 they were €0.7 billion, the gap between €17.8 billion and €17.1 billion.

Stock Analyza scorecard

The valuation score is 31 of 100.

Business quality and valuation are shown separately and are not averaged. A first-class business at a fair price is a Hold.

Confidence score

The grade measures how well the model is identified, not the chance of a loss. The lease payment estimate and the margin path are the main reasons it is not higher.

What I would watch from here

The three most important thesis breakers

1. Chinese demand keeps Fashion & Leather Goods in decline long enough to cut the margin below 21%.
2. The group buys growth through a large acquisition at a high price.
3. Luxury multiples fall to 16 times earnings, which my Bear case already assumes.

Stress test and independent check

I recomputed every value, the sensitivity grid and the reverse valuation with a separate script. That checks the arithmetic, not the forecasts. Several inputs are my estimates, as the table shows.

The weakest point is the free cash flow value, because the lease payments are an estimate. If the true figure is €2.5 billion, the free cash flow value rises by about €20 a share and the verdict does not change. The strongest bull argument is that Fashion & Leather Goods is cyclical, not broken, and a recovery to a 24.5% group margin is worth €545. The strongest bear argument is that China has changed permanently, and at 16 times and a 20.5% margin the blended value is about €228.

Final verdict: hold at €387.00, do not add

Selective Retailing grew 8% in the third quarter and Watches & Jewelry 6%. Together they earn about a fifth of the segment profit, which is why the group grew only 1%. Everything depends on the division that is shrinking.

Verdict: HOLD at €387.00, do not add. Weighted Base €365.25, 5.6% below the price, cross-check €310.50, Confidence B (18/25). Required margin of safety 35%, buy range €201.83 to €273.00, conservative buy limit €201.83.

For an existing holder, the original cost is irrelevant. At €387.00 the shares are priced about right for a recovery that is not yet visible in the numbers, so I would not sell a high-quality holding on valuation alone and I would not add. New money waits for a price at or below €273.00. The next test is the fourth quarter and full year 2026 results, which I expect in late January 2027.

Sources

Primary sources are LVMH's first half 2026 results release (July 27, 2026), its third quarter 2026 revenue release (October 12, 2026) and the 2025 consolidated financial statements. 2025 division results are summarized by The Fashion Law.

The reference market price is €387.00, the October 30, 2026 Euronext Paris close, from ABC Bourse. Balance sheet figures are as of June 30, 2026 unless stated. The share count, lease payments and minority dividends are my estimates.