Special purpose acquisition companies (SPACs) have really fallen out of favor in 2022 as many high-profile stocks that came public in this manner have declined significantly in value. But that doesn't mean there aren't some diamonds in the rough among the former SPACs.

In fact, some, like Ermenegildo Zegna N.V. (ZGN -0.34%) have outperformed the broader market in 2022. Zegna is down about 1% for the year versus declines of about 20% and 30% for the S&P 500 and NASDAQ, respectively.

But unlike many SPACs, this isn't an electric vehicle company or an unprofitable tech company; in fact, it's a 112-year-old Italian luxury fashion house, and it looks compelling going forward. Here's why.

What is Zegna? 

Zegna was founded in 1910 in the Piedmont region of Italy by Ermenegildo Zegna. The company has developed a strong reputation for luxurious garments and high-quality fabrics and textiles over the years.

Today, the company operates in two segments: Zegna, which includes the Zegna brand as well as the company's textile business, and Thom Browne, a label that the company describes as a "distinctive modern luxury brand."

This time-tested reputation as a high-quality luxury brand that has maintained a standard of excellence for well over a century gives the company a strong moat.

This is part of what makes the luxury business a strong one for incumbents; it's difficult to start a new company and immediately achieve the same brand strength that companies like Zegna and its peers have cultivated for generations.

Going global 

We are in the midst of a challenging economic environment, but apparently Zegna did not get the memo. During the most recent quarter, the company grew its revenue by 27.5% year over year.

The company's revenue for the first nine months of the year was 21% higher than it was for the first nine months of 2021. At the same time, Zegna saw strong growth in North America, Europe, and the Middle East.

Highlights by geography include scorching 86.4% growth in the Middle East and Africa, 61.6% growth in the U.K., 38.6% growth in North America, and 33.2% growth in Latin America. The strong results were enough to prompt Zegna to maintain its full-year guidance. 

The company even reported surprising 3% revenue growth in China, which is impressive given the ongoing COVID restrictions in the world's most populous country.

Let's delve further into the company's presence in China and why this will be a key component of Zegna's strategy going forward. 

The ultimate China reopening play?

By now, it's no secret that any company with significant exposure to China is dealing with the serious challenge of navigating through China's extensive COVID restrictions.

Companies like Canada Goose (GOOS -0.64%), Tapestry (TPR -1.65%), and Capri Holdings (CPRI 1.33%) have all cited China's unpredictable lockdowns as reasons for caution going forward. But Ermenegildo has even more exposure to China than most companies.

For example, Tapestry derives about 15% of its revenue in China, whereas when Zegna came public late last year, Mainland China accounted for more than 50% of the company's revenue.

In the short term, that's obviously a headwind. But in the long term, it also gives the company tremendous upside.

Analysis from Bain & Company forecasts that China will make up 46% of the global luxury goods market by 2025, up from about 37% today. Because Zegna has such a large presence in China, it should enjoy substantial leverage as China fully reopens and accounts for an increasingly larger share of the luxury market over the next several years.

Valuation and dividend  

Unlike many former SPACs and high-growth companies, Zegna is profitable. The stock trades at 22 times forward earnings, which isn't cheap but isn't unreasonable for a high-quality company that is growing revenue this quickly.

Despite only going public last year, the company is already a dividend payer. Zegna paid an annual dividend of $0.09 to shareholders this past summer.

While this doesn't equate to the type of yield that will move the needle for dividend investors, it shows that this is a healthy and stable company, and it's impressive that Zegna has become a dividend stock right out of the gate.

There is also plenty of room for the dividend to increase going forward as the company's earnings increase.

Luxury for the long term

Looking ahead, Zegna looks like a good long-term buy.

The company's long-standing reputation and strong moat as a luxury brand give it durable advantages. People enjoy looking and feeling good and will pay a premium for luxury goods that help them achieve this goal, and this isn't going to change any time soon.

Data from Statista shows that the luxury goods market is a $312 billion industry annually, and Statista forecasts this market will grow at a 5.4% compound annual growth rate (CAGR) over the next five years.

Similarly, Euromonitor predicts that the personal premium goods market will grow at a 6% to 8% CAGR over the next three years on its way to becoming a $370 billion industry.

The company's growth around the world has been impressive, and it has increased revenue in China even at a time of tremendous uncertainty there. The company's large presence in China gives it significant torque when China reopens and continues to account for a larger part of global luxury demand over the long term.

Zegna's reasonable valuation and dividend also add to its profile as an attractive investment.

I recently added the stock to my investment portfolio and view it as an investment that I can stash away for the long term and feel comfortable holding.