EssilorLuxottica should move to the US

Why don't we hold more European stocks in Vestact portfolios? We get asked this from time-to-time, so it's a good question to address here.

The main reason is that US companies trade at higher multiples relative to their earnings. There are a number of possible reasons for this, and here are a few. (1) They are better run, with a culture of maximising margins, profits and overall shareholder returns. (2) US company income taxes and dividend withholding taxes are lower. (3) The US court system is more-protective of corporate entity legal rights, especially against arbitrary government interference such as over-regulation and the blocking of mergers and acquisitions. (4) Deep-pocketed US investors prefer their own home-grown giants.

Here's an example to illustrate the point. I like, and personally own, shares of the French-Italian, company EssilorLuxottica. They have a tremendous position from the top to the bottom of the eyeglass industry, from lens-making to high-fashion sunglass boutiques.

Sales of glasses will be very strong for decades to come as more Asians, Africans and Indians deal with widespread short-sightedness. On top of that, the emerging middle classes in developing countries regard fancy sunglasses is a status symbol.

Since Leonardo Del Vecchio, the overbearing founder of Luxottica, died in 2022, the company is finally reducing layers of management and improving margins. The board has been slimmed down from 24 to 16 members. It still has 190 000 employees.

I think that the EssilorLuxottica share price would probably be 30% higher if they were to re-organise as a Delaware (US-based) corporation, move their principal listing to Wall Street, and hire a hotshot American CEO to run the company. While they are at it, they should rebrand themselves using one of the US eyewear brands, like Ray-Ban or Oakley. However, this is not likely to happen.