Even before Kering SA’s Luca De Meo had a chance to turn around the stumbling fashion label Gucci, investors had rewarded him with a surging stock price. If the new CEO pulls it off, the shares could have a lot further to go.

That is the view of analysts such as John San Marco at Neuberger Berman, who say De Meo has already begun to put the pieces in place for a recovery, naming a new boss at Gucci and vowing to cut costs. The shares have surged 64% since news broke in June that he was joining the company; the third-quarter gain of 53% is the biggest-ever quarterly advance for Kering.

“There’s a very high ceiling if they start to get the creative and product right,” San Marco said in an interview. “The leadership overhaul we’ve seen in rapid succession threads a difficult needle of cleaning up lines of accountability and responsibility.”

A revival of Gucci would end a long run of frustration for shareholders of Kering, founded by billionaire François Pinault and run by his son, François-Henri Pinault, before De Meo’s arrival in September. In the decade before the Italian executive’s appointment, the shares limped along with a return of 3.8% annually, while French rivals LVMH Moët Hennessy Louis Vuitton SE and Hermès International SCA returned 13% and 21% a year, respectively.

Kering representatives did not respond to a request for comment.

Over the past three years, Gucci — Kering’s largest brand — has faced management and design upheaval, coinciding with a weakening market for luxury goods, particularly in China.

The fashion house has had four CEOs since September 2023, as well as three designers following Alessandro Michele’s departure in November 2022, after a successful creative period that introduced an exuberant, bohemian style to the fashion crowd. Revenue at Gucci has declined for eight consecutive quarters and is expected to continue this trend when Kering reports its third-quarter sales on Oct. 22.

HSBC analysts — including Anne-Laure Bismuth, who upgraded the stock to “buy” from “hold” last month — said Gucci is unlikely to report sales growth before the second quarter of next year. Both bullish and bearish investors agree it is still too soon to see the results of De Meo’s changes, but analysts noted that the lackluster third-quarter performance will not matter much.

“We believe the new management gets a pass as the next few quarters will be deemed to be the legacy of the previous management,” Bismuth and colleagues said in a report this week. “It will be another opportunity for the market to grasp what profound changes have already been implemented in quite a short period of time.”

Skeptics argue that the market is already factoring in a turnaround. Since July, Kering shares have been more expensive relative to earnings than an industry basket compiled by Goldman Sachs Group Inc., after having been significantly cheaper for more than five years.

That valuation might leave investors hesitant going forward, said Flavio Cereda, investment director at GAM UK Ltd., who sold his stake in March when Kering appointed Balenciaga’s Demna Gvasalia as Gucci’s artistic director.

“You need a genuine reversal of trend for long-only funds to become interested again, and there’s no reason for that to happen yet,” Cereda said. “We’ll see the real impact from next spring onwards. That’s when we’ll know whether perception of Gucci is changing and whether the brand is becoming more relevant again.”

Demna — as the artistic director is known — will unveil his first catwalk collection in Milan in February.

Analysts have become significantly more bearish on Kering over the past three years than on its competitors. The stock now has 10 sell ratings, 15 holds, and only seven buys, according to data compiled by Bloomberg, with an average target price of €225.45 that is 20% below the current share price. LVMH has only one sell recommendation and Hermès two, with targets above the current stock price.

Still, analysts are growing slightly more optimistic: The recommendation consensus — a proxy for the ratio of buy, hold, and sell ratings — has ticked higher since De Meo was named CEO.

“Whilst we are encouraged by a new external and well-regarded CEO, we do not expect an overnight fix,” RBC analyst Piral Dadhania, who has a neutral rating on the stock, wrote last month.

And even Kering’s high price-earnings ratio is not an obstacle to further gains: In addition to the higher share price, the valuation reflects the collapse in earnings estimates over the past year. Any upward revisions to estimates would quickly bring the P/E ratio back down to its original level.

Already, traders have trimmed their bearish bets on the stock. Shares out on loan — an indication of short interest — represented about 7% of the company’s free float as of Monday, according to data from S&P Global Market Intelligence, down from 21% in May.

Kering will require investors’ patience on Gucci’s turnaround and the overall recovery of the luxury sector, Morningstar analyst Jelena Sokolova wrote in a note.

“Gucci should be in a position to regain its pricing and desirability in the long run,” Sokolova said. “Although the catalysts are unclear, we have yet to see a brand of Gucci’s global recognition and scale fall permanently out of fashion.”