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Over the last six months, Estée Lauder’s shares have sunk to $81.97, producing a disappointing 18.6% loss - a stark contrast to the S&P 500’s 9.4% gain. This might have investors contemplating their next move.
Is now the time to buy Estée Lauder, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Even though the stock has become cheaper, we're cautious about Estée Lauder. Here are three reasons why EL doesn't excite us and a stock we'd rather own.
Why Is Estée Lauder Not Exciting?
Named after its founder, who was an entrepreneurial woman from New York with a passion for skincare, Estée Lauder (NYSE:EL) is a one-stop beauty shop with products in skincare, fragrance, makeup, sun protection, and men’s grooming.
1. Core Business Falling Behind as Demand Declines
When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.
Estée Lauder’s demand has been falling over the last eight quarters, and on average, its organic sales have declined by 3.1% year on year.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Estée Lauder’s revenue to rise by 2.6%. Although this projection implies its newer products will catalyze better top-line performance, it is still below average for the sector.
3. EPS Trending Down
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Estée Lauder, its EPS declined by more than its revenue over the last three years, dropping 27.5% annually. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Final Judgment
Estée Lauder isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 25.3× forward price-to-earnings (or $81.97 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. We’d suggest looking at one of our top software and edge computing picks.
Stocks We Would Buy Instead of Estée Lauder
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.