On Friday, Goldman Sachs (NYSE:GS) made a notable adjustment to its rating on Prada (OTC:PRDSY) SpA (1913:HK) (OTC: PRDSY), shifting from a "Neutral" stance to a "Buy" recommendation. Accompanying this upgrade, the firm also increased its price target for the luxury fashion company's stock from HK$64.00 to HK$68.50. The upgrade comes as Prada's stock has shown remarkable momentum, delivering a 40.89% return over the past year and an impressive 10.7% gain just last week, according to InvestingPro data.
The brokerage firm's optimism is rooted in Prada's potential for continued market share gains, particularly through retail like-for-like (LFL) sales and strategic expansion of retail space. This confidence is supported by Prada's exceptional gross profit margin of 80.16% and an overall GREAT financial health rating from InvestingPro.
The smaller Miu Miu brand, which comprises 24% of the group's retail sales for the fiscal year 2024, has been a highlight with its surprising strength. Despite facing tough year-on-year comparisons, with retail sales growing 58% in constant foreign exchange (cFX) terms in FY23 and an estimated 83% in FY24, Miu Miu is still seen as having substantial room for growth, especially in new retail spaces.
The larger Prada brand, accounting for 74% of the group's retail sales in FY24 estimates, has also demonstrated significant outperformance compared to its peers over the past year. This success is attributed to the brand's strong appeal to younger customers and effective customer acquisition strategies.
Prada's management confirmed during the third-quarter sales update for 2024 that both the Prada and Miu Miu brands have experienced like-for-like sales growth over the past two to three years. Consequently, the growth strategy for 2025 includes not only new store openings but also the enlargement of existing stores, capitalizing on this momentum.
Currently, Prada boasts 417 retail stores globally, while Miu Miu has a smaller footprint with just 139 stores. The gap in the number of retail locations between the two brands underscores the opportunity for expansion that Goldman Sachs has highlighted.
With revenue growing at 11.27% over the last twelve months, the firm's revised price target and rating reflect confidence in Prada's strategic initiatives and growth prospects within the luxury fashion market. For a comprehensive analysis of Prada's valuation and growth potential, including 7 additional ProTips and detailed financial metrics, visit InvestingPro.
In other recent news, Prada SpA has been the focus of analysts' attention following impressive third-quarter results and sustainable growth projections. BofA Securities upgraded Prada's stock from Neutral to Buy, citing the company's potential for continued outperformance in the luxury market, driven by its subsidiary brand, Miu Miu. The firm also increased Prada's price target to HK$65.00, up from HK$60.00, based on a projected 18% potential upside for the shares.
In addition to BofA Securities' upgrade, CLSA also holds a positive outlook on Prada, raising its price target to HK$68.00 from HK$67.00 while maintaining an Outperform rating. The revisions by both firms follow an 18% year-over-year constant currency sales increase for Prada in the third quarter of 2024, surpassing both firms' projections. This growth was largely attributed to the Miu Miu brand, which saw a significant 105% increase in retail sales year-over-year.
Both BofA Securities and CLSA anticipate Prada's sales and net profit to continue growing over the medium term, with projections of a compound annual growth rate of 7% to 10% from 2024 through 2026. These recent developments underscore Prada's strong performance and the high expectations set by analysts for the luxury brand's future.
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