Samsonite Stock can be a Long-Term Winner. Here’s Why

Here’s why I think Samsonite International S.A. (SEHK: 1910) could be a winning stock over the long term. –

Global Covid-19 cases has surpassed 16 million so far and many countries are struggling to control and stabilise the outbreak.

Financial markets, on the other hand, did not react too pessimistically with a strong risk-on approach. That being said, some industries still stayed at rock-bottom prices, predominantly in the travel and leisure companies.

To put it in perspective, the Bloomberg World Airlines Index and Bloomberg Europe Travel Index have plunged more than 40% year-to-date.

Luggage maker Samsonite International S.A. (SEHK: 1910) looks particularly interesting under this devastating investment landscape.

In 2020, Samsonite’s share price has dropped by close to 60%, which performed even worse than the average Airlines and Travel indices.

Investors seem to be acting rationally as they wait for the demand of travel discretionary goods (i.e., luggage) to return after demand for international travel comes back.

However, regardless of the pessimistic outlook, Samsonite can perhaps be a long-term winner against the tide. Here’s why I believe that.

International tourists

Some people argue that life after Covid-19 will never be the same. For example, people will stay at home more often and do less of both business and leisure travel.

Personally, I have taken a “statistically insignificant” survey with friends and relatives: what is the one thing you want to do after the pandemic?

It is not hard to guess the dominant response is “to travel”. Of course, with such as small sample size and location bias, anyone with a fair statistical knowledge will consider the result as anything but useful.

Nevertheless, it has given me a perspective. For more trustworthy data, we turn to the World Tourism Organisation.

According to the body, we have had 10 consecutive years of growth on International Tourist Arrivals, with an average growth rate of 5%.

In 2019, the overall growth rate was 4%, and if we look at the regional breakdown, we can see an above-average growth rate in Asia-Pacific (5%) and the Middle East region (8%).

If you believe in a normalised world after the pandemic, demand of international travel should rebound then follow by demand for travel discretionary goods.

Leader in the market

Samsonite is in a good position to capitalise on the theme of normalisation and increasing demand in luggage.

According to the company information, Samsonite engaged in the design, manufacture, sourcing and distribution of luggage primarily under the Samsonite, Tumi, American Tourister, and other brand names.

Referring to the company’s 2019 annual report, the top three brand names already contributed net sales of more than US$2.9 billion.

Samsonite has a well-diversified product-mix (i.e., from high-end to mid/low-end products) and strong sales distribution channels across key regions (i.e., North America, Asia, and Europe).

They are uniquely positioned to capture market share of the growing industry. Furthermore, a rock-bottom valuation relative to its historical average is perhaps another opportunity if earnings start to recover in a normalised world.

Managing the downside

According to the latest investor presentation, the company seems to be doing the right things to control liquidity. During these uncertain times, the company has taken immediate actions to reduce costs and improve liquidity.

It borrowed US$810 million on its revolving credit facilities, suspended net leverage and interest coverage covenants until Q3 of 2021 and secured an additional US$600 million of liquidity through incremental term loan borrowing.

Hoping for upside

Under the stressed operating environment, Samsonite possibly has an invaluable opportunity to eat up market share of the weaker competitors, as long as it has sufficient liquidity to support its operations till the end of the Covid-19 pandemic.

Though some experts think a vaccine may not become widely available before mid-2021, recent trials certainly offer some hope for people to even think about leisure in a post-Covid world. I believe that normalisation is perhaps just a matter of time.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lonnie Yen doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited( 2020

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