A first look at Prada
As I highlighted on Monday, the global luxury sector has taken a beating due to the conflict in the Middle East.
On Tuesday, I analyzed U.K. spirits maker Diageo (DEO), which I think could be in the early stages of a turnaround. And yesterday, I took a look at perfume and cosmetics company Coty (COTY), which I concluded was an "interesting speculation."
Continuing with this theme, today let's take a look at Italian luxury goods maker Prada...
Shares trade primarily on the Hong Kong Stock Exchange with the ticker "1913." It also trades on the pink sheets in the U.S. with the ticker "PRDSF."
In addition to its namesake brand, it owns names like Miu Miu, Versace, Church's, and Car Shoe. It designs, manufactures, and distributes its products in more than 70 countries.
As with Diageo and Coty, the stock caught my attention thanks to analyst Eden Bradfield's recent Substack post:
12x earnings, ladies and gentlemen! 12x! Prada has always suffered a weird kind of position in the market because 1) It was listed in [Hong Kong] and 2) Mrs. Prada's husband ran it for a long time and he was famously volatile. He does not run it anymore. The company had a spate of ill-fated acquisitions in the [1990s]. The company is very different now.
It also has very little exposure to the Middle East... [and] actually continues to grow, [especially] versus peers...
In short – Prada is both a cheap stock and one exposed to the macro forces of a growing Asia. Both of these bode well for it. Because Prada [understands] the Asian consumer and don't take them for fools... they're positioned to do well in the future.
That's a compelling elevator pitch. So let's take a look at Prada's financials...
This is a very high-quality business with strong global brands, translating into a gross margin of 80% and net margin and return on equity approaching 20%:
Prada's revenue and net income soared in the first four years after the global financial crisis, then plunged over the next seven years. But it reversed course starting in 2021, steadily rising to hit all-time highs last year:
Most stocks follow earnings over time, which was the case for Prada for most of its life as a public company. But there has been a huge disconnect since its high of nearly $9 just over a year ago...
Even as revenue and profits have soared, its stock has been almost cut in half to close yesterday at $4.90:
Meanwhile, Prada generates strong and rising free cash flow ("FCF"):
As for capital allocation, the company doesn't repurchase shares. Instead, it pays a healthy and growing dividend, with the stock currently yielding 3.9%.
It has only made one big acquisition – Versace for $1.4 billion (the deal closed on December 2, 2025, so Prada's financials only reflect four weeks of owning the brand):
Prada's balance sheet is healthy, with only $462 million of net debt (excluding operating leases) due to the Versace acquisition. That's a swing from $599 million of net cash a year earlier:
Overall, I would characterize Prada's financials as very strong.
Turning to valuation, Prada has a market capitalization of $12.8 billion. Analysts estimate that the company will earn $0.37 per share this year, meaning the company is trading at 13.2 times earnings.
That's close to its all-time low, which is also true of another metric: price to next-12-months estimated cash flow per share. Today it's 7.4 times, roughly half its long-term average of 14.6 times:
In summary, based on this first look, I really like what I see here. Prada is a high-quality business with strong financials, yet its stock has been cut in half, resulting in very low valuation metrics on both a relative and absolute basis.
What am I missing? What's the bear case for this stock? If you have any insights, you can send me an e-mail by clicking here.
I'll do a deeper dive in tomorrow's e-mail, so stay tuned...
Best regards,
Whitney