In short: BUY. ER 10.20%; fwd PE 35.7 vs 48.3 (26.1% under); fair value €1,441.2 vs €1,399.50 (only 2.9% under); RDCF 17.3% vs 11.9%. YTD −32.9%.
In short: Favourite #2 — "An ultra-luxury brand with strict production limits that create massive pricing power." "Their bags are made by hand. Production is strictly limited. They never have to put items on sale. That keeps their profits high and stable in almost any economy." Metrics: revenue +14.7%, EPS +15.2%, gross margin 71.1%, ROIC 43.7% (ROCE 34.5%, FCF margin 28.1%, $180.3bn market cap on the sheet). Chart: gross margin 68.5-72.3% every year since 2017; net margin up from 22.1% to a 32.2% peak (2023), 28.1% LTM. The portfolio's LVMH was flagged in the 3 September "Our Portfolio Needs Surgery" issue (not archived here) as a possible switch "to Hermes"; no switch is mentioned here.
Hermès makes handbags, silk scarves and clothes at the very top of the luxury market. Its trick is to make fewer bags than people want, by hand, so it never discounts and never has leftover stock. That scarcity is why buyers wait, and why about 71 cents of every sales dollar is left after the cost of making the product — a figure that has barely moved in a decade.
The screen passes it on every test, and the post calls its profits "high and stable in almost any economy." There is no valuation here; the case for buying now was made in late August, when the shares had fallen about 30%.
In short: Best Buy #5 — "An ultra-luxury house with extreme scarcity, zero discounting, and high pricing power." Sixteen product métiers; the model is deliberate under-supply: "They intentionally make fewer products than customers want. This means they don't need to offer discounts, sell through outlets, or hold excess inventory." The scarcity is evidenced by the resale market — "pre-owned bags often sell for more than new ones… Would you pay $42.700 for a handbag?!" Governance: "the founding family controls more than 65% of the equity." The opportunity is a de-rating with a stated cause: revenue and net income "slowed a little bit" in 2026 and the stock is down nearly 30%, but "much of the slower growth comes from currency headwinds. On a constant-currency basis, the underlying business is still growing." Conclusion: "after years of being very expensive, the valuation… is finally coming down to more reasonable levels." Upgraded HOLD → BUY a week earlier.
Hermès makes Birkin bags, silk scarves, watches and perfume, and its central business decision is to make fewer of them than people want. That refusal to meet demand means it never discounts, never needs outlet stores and never carries unsold stock — which is why its margins are the highest in luxury. The proof that the scarcity is real is the second-hand market, where used bags routinely fetch more than new ones.
The family still owns more than 65% of the shares, which is the strongest possible guarantee that nobody will be tempted to boost this year's sales by making more bags and quietly spending the brand.
The opportunity is that the shares have fallen nearly 30% after growth slowed in 2026. The letter's argument is that the slowdown is largely a currency-translation effect: measured in constant currencies the business is still growing. After years of being priced for perfection, "the valuation is finally coming down to more reasonable levels" — though as with the rest of the list, no actual multiple or fair value is given here.
In short: UPGRADED HOLD → BUY — "French luxury goods manufacturer." The upgrade is a de-rating story rather than a cheap one: fwd PE 35.7 against a 48.3 five-year average (26.1% under) after a −26.2% year, but the reverse DCF still demands 18.4% growth against 11.9% expected (−6.9pp) and the expected return is the lowest of any Buy at 10.00%. Written up in full a week later as Best Buy #5.
Hermès makes Birkin bags, silk scarves and other very expensive things, and it deliberately makes fewer of them than people want. That single choice is the business model: no discounting, no outlet stores, no leftover stock, and margins other luxury houses cannot match.
It has always been too expensive to buy. This upgrade is a statement that it has become less so — 36 times forward earnings against a five-year average of 48, after the shares fell about 26% over the year. It is still not cheap in absolute terms: the expected return of 10.0% is the lowest of any name on the buy list, and the reverse-DCF test says the price still demands 18.4% growth against 11.9% expected. Read the upgrade as "finally within reach" rather than "a bargain".
In short: The worked example of intangible assets: "A competitor can make a similar bag, but they'll never have the prestige that allows Hermès to consistently raise prices without losing demand." Rated Hold on the June list after an upgrade from Sell.
In short: UPGRADED SELL → HOLD — "Luxury goods company." The only upgrade out of the Sell bucket in the issue, and the counterpart to LVMH's Hold: the archive keeps the two luxury houses one notch apart, having argued in May that Hermès is "often the last luxury brand to feel a slowdown and the first to recover."
In short: UPGRADED Sell → Hold — "French ultra-luxury fashion company", four days after being ranked Best Buy #4. The two ratings sit oddly together: a top-five monthly idea that is only a Hold on the valuation list.
In short: Best Buy #4, and the one name not carried over from the April shortlist. Segments given: Leather Goods and Saddlery ~43% of revenue, Ready-to-wear and Accessories ~28%, Other ~29%. 2025: revenue €16bn, +9% at constant rates, with a 41% operating margin. The economic label is the useful part: "Hermès is the ultimate Veblen Good. This means that as the price goes up, the demand increases because the prestige grows." Three supports — the waitlist, vertical integration "from the tanneries to the workshops", and a customer base that holds up in downturns: "that's why Hermès is often the last luxury brand to feel a slowdown and the first to recover." Upgraded Sell→Hold four days later on 7 May.
Hermès makes Birkin and Kelly handbags, silk, watches and perfume, and deliberately makes fewer of the famous items than people want. Leather goods are about 43% of sales, clothing and accessories 28%, and everything else 29%. In 2025 it sold €16 billion, growing 9%, and kept 41 cents of every euro as operating profit — an extraordinary margin for a manufacturer.
The technical term used here is worth learning: Hermès is a Veblen good. For most products, raising the price reduces demand. For a Veblen good the opposite happens — the higher the price, the more desirable the item becomes, because the price is part of what is being bought. That is why the waitlist exists and why it works.
Two other supports. It owns its whole supply chain, from the tanneries to the workshops, so quality is controlled in a way rivals cannot match. And its customers are the very rich, whose spending holds up in a downturn — which is why Hermès is usually the last luxury house to feel a recession and the first to come out of it.
In short: "The waitlist is the product." Scarcity as strategy, with the secondary market as proof — "a bag bought for €6,500 sells for €35,000 at auction. That's not a handbag." The founding family owns 67% and controls 78% of the votes; revenue has compounded 12.8% a year over ten years while the rest of luxury struggles; only 300 stores worldwide, all tightly controlled. The stock is down 33% over the past year and "now trades at one of its cheapest valuation levels of the past 10 years. However, a Forward PE of 36.4x is still expensive." Target 30x = €1,364 against €1,676. Returns at Best Buy #4 on 3 May and is upgraded Sell→Hold on 7 May.
Hermès makes the Birkin and Kelly handbags and deliberately produces fewer of them than people want. You cannot walk in and buy one; you go on a waiting list. The shortage is not a supply problem, it is the strategy — and the proof is the resale market, where a bag bought for €6,500 can fetch €35,000 at auction.
It also owns its production end to end, from the tanneries to the workshops, so it controls quality in a way rivals cannot, and it operates only about 300 stores worldwide. The founding family owns 67% of the shares and 78% of the votes, which is what allows management to keep supply tight instead of chasing quarterly sales.
While the rest of luxury has struggled, Hermès has grown revenue 12.8% a year for a decade. The shares have nonetheless fallen 33% over the past year and are now at one of their cheapest valuations in ten years — and the judgment here is that 36 times profits is still too expensive. The stated buying level is 30 times, about €1,364 against €1,676.
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Verbatim excerpts from the public transcripts (auto-pulled at each mention's timestamp, lightly cleaned). Timestamps link into the video; "source page" opens that commentator's full analysis at this row. Click a mention's header line to expand it (one open at a time). For personal study — not investment advice.