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Analysts Ponder If Apple Should Compete With Gucci Clothes Rather Than Galaxy Phones

Depending on the tech unit, analysts compare Apple Inc. AAPL and Tesla Inc TSLA, Apple and Microsoft Corporation MSFT, Apple and Amazon.com, Inc. AMZN.

But any one of these analogies may be akin to comparing Apple and, well, oranges.

“Recently, with an offensive retail strategy and in some cases comparable price points, Apple has competed with the likes of Louis Vuitton, Cartier or Prada which made us raise the question: is Apple actually a luxury stock?” HSBC analysts Erwan Rambourg, Antoine Belge, Anne-Laure Bismuth and Steven Pelayo wrote in a Tuesday note.

The Non-Tech Apple

According to their thesis, Apple competes with consumer discretionary brands. In an economic decision involving the iPhone X, potential customers could weigh the indulgence against a $999 hotel stay, dining experience or Louis Vuitton product.

“Apple competes well across all of these different sectors because of its versatility in its functionality, but like luxury brands, it’s also competing as a way to express status and to fit in,” the analysts wrote. “Consumers are buying the spirit of the brand and the way it makes them feel about themselves and in society.”

Planting Seeds In Luxury

Apple’s senior management team, which includes the former CEOs of Burberry Group BURBY and Yves Saint Laurent, are equipped to infuse corporate strategy with luxury insights, particularly in the Chinese market.

At the same time, the firm’s recent rollout of “Town Squares” suggests a renewed focus on retail, in which HSBC recognizes substantial opportunity for penetration growth. Such sales account for just 25 percent of the company’s total.

So, Is Apple A Luxury?

Based solely on valuation, Apple is incomparable to luxury, according to HSBC. Apple trades at just 12.5 times HSBC’s price-to-earnings estimates against luxury’s 22.5 multiple.

“We find it surprising that, despite similar ROIC-type metrics, valuation at Apple is so much lower than luxury,” the analysts wrote.

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