The Estee Lauder Companies Inc (EL, Financial) has recently experienced a daily loss of -3.5%, and a 3-month loss of -21.03%. Despite these figures, the company's Earnings Per Share (EPS) stands at 3.01. This raises the question: Is The Estee Lauder significantly undervalued? To answer this question, we'll delve into an in-depth valuation analysis.
Company Overview
The Estee Lauder is a global leader in the prestige beauty market, with a diverse portfolio of brands across various categories. The company operates in more than 150 countries, with a significant presence in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. Despite its current stock price of $156.39, the company's fair value, according to GuruFocus' proprietary GF Value, stands at $251.55. This discrepancy suggests that The Estee Lauder's stock may be significantly undervalued.
Understanding GF Value
The GF Value is a unique valuation method that estimates a stock's intrinsic value based on historical trading multiples, an internal adjustment factor, and future business performance estimates. The GF Value Line represents the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it's likely overvalued and may offer poor future returns. Conversely, if it's significantly below the GF Value Line, the stock may be undervalued and could offer higher future returns.
The Estee Lauder's current stock price, coupled with its market cap of $55.90 billion, suggests that the stock is significantly undervalued. This undervaluation implies that the long-term return of its stock is likely to exceed its business growth.
Financial Strength
Investing in companies with strong financial strength minimizes the risk of permanent capital loss. A good starting point for assessing a company's financial strength is its cash-to-debt ratio and interest coverage. The Estee Lauder has a cash-to-debt ratio of 0.59, ranking better than 54.01% of companies in the Consumer Packaged Goods industry. This suggests that The Estee Lauder's financial strength is fair.
Profitability and Growth
Companies with consistent profitability are typically less risky investments. The Estee Lauder has been profitable for 10 out of the past 10 years, with an operating margin of 12.24%, which is better than 78.89% of companies in the Consumer Packaged Goods industry. This suggests that The Estee Lauder's profitability is strong.
Growth is a crucial factor in a company's valuation. The Estee Lauder has a 3-year average annual revenue growth rate of 6.6%, ranking better than 51.17% of companies in the Consumer Packaged Goods industry. Its 3-year average EBITDA growth rate is 10%, ranking better than 57.15% of companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) provides insight into its profitability. The Estee Lauder's ROIC of 10.48 is higher than its WACC of 9.54, indicating effective cash flow generation relative to its invested capital.
Conclusion
In conclusion, The Estee Lauder's stock appears to be significantly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 57.15% of companies in the Consumer Packaged Goods industry. To learn more about The Estee Lauder stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
