Hello,
It’s been a week since I completed my A-Z review of companies under 100M market cap on the Euronext Growth Milan. Compared to markets like Japan or the UK, there’s a noticeable improvement in company quality. Funny enough, the more I examine companies in markets closer to Croatia, my home country, the more I see non-US investors undervaluing growth and quality. At least within my investable universe.
In the US, a small, predictable company expected to grow 15-20% annually over the next 3-4 years is typically priced at 30x P/E. Meanwhile, similar companies in Italy, Poland, or Slovenia are often priced at around a market multiple, with most investors adopting a “wait and see” approach, only bidding it up after it delivers strong results. On the other hand, I've noticed that currently, there’s little difference in how investors price low-growth value stocks between the US and Eastern or Central Europe.
I’m not sure if this has always been the case, but it naturally led me to focus more and more on higher-quality companies. Why pay 6-7x forward EV/EBIT for a no-growth, average business when I can buy a company with substantially stronger market position and better growth prospects for 8-9x forward EV/EBIT? Of course, while this doesn’t apply to all companies, I’ve noticed this pattern often enough recently to recognize a trend.
In this write-up, I’ll explore another unique Italian company that I believe reflects the “wait and see” hesitancy of many European investors. It offers a less risky way to capitalize on the luxury sector's recovery, without the “fashion” risk or uncertainty that comes with betting on a single luxury brand. As one journalist put it in 2018, it's the “fashion world’s best-kept secret.”
This company is also one of dozen that my friend David Diranko and I aim to visit during our scuttlebutt trip to Northern Italy in May, where we hope to gain a deeper understanding of the management and local markets. Enjoy!