H&M share analysis: slowing growth and intense competition

Recently, rumours have been circulating that the founding Persson family, through their investment vehicle Ramsbury Invest, may be planning to delist H&M. The family currently owns around 64 percent of H&M's shares and has expanded this stake more rapidly this year than in previous years.

A recent analysis on BNR Radio revealed that the Swedish fashion chain faces significant challenges, despite its global presence and strong brand recognition. The company, the second-largest fast fashion retailer, is struggling with slowing growth, intense competition and increasing criticism of its sustainability practices. In the BNR Nieuwsradio podcast Doorgelicht, journalist Nina van den Dungen and investment expert Jim Tehupuring analyse H&M so listeners can determine if the share is right for them.

Performance and financial outlook

H&M's share price has experienced a significant decline. The share is trading at around 130 Swedish krona, a sharp drop compared to approximately 200 Swedish krona a year ago. The company's share price has shown a downward or sideways trend over the past ten years, peaking at 363 Swedish krona in 2015.

Turnover has remained relatively stable in recent years, fluctuating between 230 and 250 billion Swedish krona. In euros, this translates to a turnover of around 21 billion euros.

Despite the stagnating turnover, H&M remains profitable annually. Net profit improved from 325 million euros in 2022 to one billion in 2024. H&M also offers a dividend yield of around five to six percent, BNR notes.

Strengths and weaknesses

H&M enjoys high brand awareness and an extensive global presence, with stores in 79 countries and approximately 140,000 employees. The concept of fashionable clothing at accessible prices appeals to a broad target group. The company has broadened its offering through collaborations with well-known designers and expansions into segments such as H&M Home and cosmetics. H&M has a relatively short supply chain, allowing it to respond quickly to fashion trends. In addition, H&M has a strong online presence, although around 70 percent of its turnover comes from physical stores.

The significant dependence on physical stores makes H&M vulnerable. A key weakness is the declining growth, which peaked about a decade ago. More than half of H&M's turnover comes from Europe, indicating saturation in these markets and limited opportunities for further geographical expansion.

Opportunities and threats

Opportunities for H&M lie in expansion into emerging markets, such as Southeast Asia and India, where a growing middle class offers significant potential for new customers. Increasing sustainability efforts is another important opportunity. Ongoing cost-saving initiatives also offer a chance to further optimise profit margins.

The main threat to H&M is the intense competition from other fast fashion retailers such as Inditex and Primark, which often have faster production cycles. New players such as Temu and AliExpress also pose a significant threat due to their extremely low prices, which attract younger consumers in particular. Rising costs for production and raw materials, combined with increasing labour protection in low-wage countries, also affect profitability. Moreover, changing consumer behaviour, with a growing preference for vintage and second-hand clothing, and a negative perception of fast fashion, threatens H&M's business model.

Compared to competitors like Inditex and Gap, H&M has underperformed on the stock market. Inditex's shares have risen by 90 percent in the past five years and Gap's by 120 percent, while H&M's have fallen. Inditex also shows higher margins and stronger growth, although it trades at a higher price-to-earnings ratio of 30, compared to 18 for H&M.

For investors, H&M may be attractive as a dividend share due to its consistent profitability and reasonable valuation, but it is not considered a growth share. It is less suitable for investors who prioritise high environmental, social and governance (ESG) ratings, given the nature of the fast fashion industry, BNR Radio concludes.

• Neither this podcast nor this article gives advice on whether or not to buy shares.