About Estee Lauder
We pretty much know absolutely squat about makeup, beauty products, cosmetics and all of that other jazz.
However, that doesn’t mean that we don’t know a storied, scaled, successful and company that is wildly popular among the masses when we see one.
Headquartered in one of the fashion capitals of the world, New York, New York, Estee Lauder is a company that generates a considerable bulk of its total revenue from its skin care makeup divisions (80%) and sells a host of other products related to the beauty space.
Incidentally, we at MacroHint think, at least from what we have gathered through some cursory online research and mere independent thinking, that the beauty sector is largely recession resistant, as Estee Lauder’s customer base(s) wants to look and feel beautiful regardless of the state of the economy.
This is great for long-term oriented investors.
Our recession resistant hunch is also supported in a way by the company’s share price performance over the last five years. Specifically, although Estee Lauder’s stock (NYSE: EL) is down around 13% over this last year’s span of time (at the time of this initial publication), the company’s stock is up nearly 103% over the past five years, as the company shares showed overwhelming resilience through its post-initial pandemic scare rebound.
It’s also worth noting that Estee Lauder, like many other seasoned beauty companies, has grown through its fair share of acquisitions.
To name a few, the company is home to its flagship cosmetics entity, Clinique, along with Bobbi Brown Cosmetics, as well as one of its more profitable brands, La Mer, not to mention MAC Cosmetics and Tom Ford Beauty, which explains the company’s notable global market share of nearly 8%, which is quite impressive, especially in the highly fragmented, competitive makeup space.
From initial appearances, Estee Lauder and its stock are as pristine as its products, however, let’s dig a bit deeper into this company’s stock and attempt to garner a conclusion as to whether or not it is worth further investigation on your part or potentially investing in for years to come.
Estee Lauder’s stock financials
To get things kicked off, Estee Lauder’s share price (NYSE: EL) is currently trading at just south of $272, accompanied by a market capitalization of $97 billion, a price-to-earnings (P/E) ratio of 45.17 as well as an annual dividend that it distributes to its shareholder base of $2.64.
So far, so expensive.
Namely, the company’s share price, according to its present price-to-earnings ratio is inflated relative to what it is actually worth, at least, according to the generally held principle that a P/E of 20 implies that a company’s stock is trading at fair value and subsequently anything higher than 20 indicates that its shares are trading above fair value, or in layman’s terms, overvalued.
This appears to be the case with Estee Lauder’s stock.
In a way, it makes sense given the company’s recent meteoric stock price rise, elevating it to levels that are seemingly no longer in-line with its actual, intrinsic value.
However, we’re not going to let this one metric completely dissuade us from investigating further into the company and its financials.
In keeping with our adventurous attitude, let’s take a look at some of the company’s core financial statements, starting off with its balance sheet.
According to the company’s balance sheet, Estee Lauder’s executive team is tasked with managing and properly allocating approximately $20.9 billion in total assets along with around $15.3 billion in total liabilities.
What can also be noted from the company’s balance sheet (on TD Ameritrade’s platform) is that it has taken on some more debt (and other liabilities) over the last five years, as its total liabilities stood at nearly $7.9 billion in 2018, nearly doubling since then.
While it’s certainly a positive that the company’s executive team has managed to keep the amount of its total liabilities contained within the amount of its total assets, expenses and liabilities are likely to continue rising, at least in the short-term.
Given the size, scale and overall global footprint of Estee Lauder we’re not overly concerned with the company’s relatively elevated amount of total liabilities, however, it is certainly something to keep an eye on as we trudge through the current bear market and eventually come out on the other end.
Moving right along to the company’s income statement, Estee Lauder’s total revenue favors our initial thoughts regarding the company being recession resistant.
Specifically, the company reported total revenue of $13.6 billion in 2018, rising the next year to nearly $14.9 billion and continuing a general upward trend up until its latest report (2022) of $17.7 billion.
There you have it.
People still want to look pretty even when the economy is filled with higher costs and a proportionate amount of uncertainty, or so this at least appears to be the case through Estee Lauder’s recent total annual revenue figures.
From the perspective of the cash flow statement, there isn’t too much to harp on as the company’s total cash from operations has remained very consistent over the last five years and its net income has been the same for the most part, although it did see a notable drop in 2020, dipping down to a lower level of $696 million, however its net income rose right back up to more normal levels the following year, particularly to around $2.9 billion.
Estee Lauder’s stock fundamentals
Cosmetics is well known for being a profitable industry, at least in more cases than none.
Being that Estee Lauder is a leader in the space, we weren’t all too surprised to find that the company’s trailing twelve month (TTM) net profit margin is mildly higher than that of the industry’s average, standing at 12.75% to the industry’s average of 9.89%, according to TD Ameritrade’s platform.
Although some may view this as a negligible difference, any inch gained by Estee Lauder over its more than capable competitors is not to be scoffed at.
Cosmetics are competitive.
Lastly, according to the company’s TTM returns on assets and investment, Estee Lauder has also been able to accomplish higher returns on these fronts compared to the averages of its peers. For instance, according to TD Ameritrade’s platform, the company’s TTM return on investment presently tops the industry’s average by nearly 6% and the industry’s average TTM return on assets by approximately 5%.
Should you buy Estee Lauder stock?
Core financial metrics alone, this company’s quality is confirmed in our eyes.
With a strong TTM net profit margin paired with more than sufficient TTM returns on assets and investment blended with the company’s good balance sheet and strong brands to keep Estee Lauder relevant, one of the far and few dislikes we have with this company involves something that is largely out of its control but nevertheless very important to us; valuation.
From our perspective, this company’s stock needs to come down a lot further before we’d even get close to paying a massive premium for its shares.
Yes, the company is evidently recession resistant overall, yes, the company has seen generally growing total annual revenue, however, the growth runway needs to be a lot longer for us to get interested in buying (or considering buying for that matter) a presently overpriced stock.
Putting all of these considerations together, we give the company’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.