Investing.com -- European luxury stocks have recently gained momentum as Goldman Sachs highlighted a projection of "modest" growth for the sector in 2025, forecasting a 3% currency-adjusted revenue increase.
Despite the tempered growth outlook, this reassessment has created opportunities for selective stock investments within the industry.
The note underscores the importance of long-term structural drivers, such as high barriers to entry, robust brand equity, and pricing power, which provide resilience to the luxury sector even in slower growth periods.
The analysts indicate that valuation support is emerging in the sector, with current price-to-earnings ratios trading below their ten-year averages by approximately 11%.
This divergence opens pathways for savvy investors to capitalize on potential rebounds, particularly as Western markets show early signs of recovery and anticipation builds for a cyclical upturn in Chinese demand during the latter half of 2025.
Goldman Sachs’ outlook emphasizes the critical role of China, where recovery has been delayed by ongoing challenges in the real estate market and broader economic headwinds.
Drawing parallels to previous downturns, such as the U.S. financial crisis and Japan’s 1990s stagnation, the report projects that Chinese luxury demand will begin to recover positively in the third quarter of 2025.
This turnaround is expected to drive revenue growth, bolstered by increased consumer confidence and government stimulus measures.
Within this complex landscape, Goldman Sachs has spotlighted specific companies poised to outperform, upgrading stocks like Moncler and Prada (OTC:PRDSY) to "buy" ratings.
Brands with strong market positioning, such as LVMH, Moncler, and Prada, are highlighted for their ability to expand market share at attractive valuations.
Additionally, the analysis identifies defensive stocks like Brunello Cucinelli and Zegna as well-positioned to navigate near-term challenges.
Meanwhile, high-end brands catering to resilient customer segments and those with exposure to the anticipated Chinese rebound are viewed as strategic investments.
Sector dynamics for 2025 suggest that pricing, rather than volume, will remain a key driver of growth, with anticipated contributions of 3–4% to overall revenue. However, margins are expected to remain flat due to ongoing pressures in the first half of the year, partially offset by improvement in the second half.
Analysts caution against seeking exposure to turnaround stories, such as Kering (EPA:PRTP), citing a more cautious outlook for brands attempting to regain lost market share.
This measured optimism is tempered by risks, including uncertainty surrounding China’s recovery trajectory, macroeconomic pressures, and potential regulatory challenges.
Nonetheless, the 2025 outlook provides a roadmap for discerning investors, favoring brands with defensive qualities, robust pricing strategies, and exposure to recovering geographies like China.
The sector’s resilience and long-term growth trajectory, supported by strong consumer demand for high-end goods and the enduring appeal of iconic luxury brands, make European luxury stocks an intriguing investment case, particularly as the market adjusts to these new dynamics.