The Estee Lauder Companies Inc. (EL, Financial) experienced a daily loss of -2.9%, and a 3-month loss of -21.33%. Despite these figures, the Earnings Per Share (EPS) (EPS) stands at 3.01. This article seeks to answer whether the stock is significantly undervalued. Read on for an insightful valuation analysis.
Company Overview
The Estee Lauder Companies Inc. is a global leader in the prestige beauty market, with a diverse portfolio of brands across skin care, makeup, fragrance, and hair care categories. Its top-selling brands include Estee Lauder, Clinique, M.A.C, La Mer, Jo Malone London, Aveda, Bobbi Brown, and Origins. The company operates in more than 150 countries, generating revenues from the Americas, Europe, the Middle East, Africa, and Asia Pacific. It sells its products through various channels, including department stores, travel retail, specialty multibrand beauty stores, brand-dedicated freestanding stores, e-commerce, salons/spas, and perfumeries. The company's current stock price is $152.14, with a market cap of $54.40 billion, while its GF Value stands at $251.32.
Understanding GF Value
The GF Value is an estimation of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally trade. If the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, it is considered undervalued and its future return is likely to be higher.
Estee Lauder's GF Value
Based on GuruFocus' valuation method, The Estee Lauder (EL, Financial) appears to be significantly undervalued. The stock's current price of $152.14 per share and a market cap of $54.40 billion give indications of being significantly undervalued. The GF Value Line suggests that the stock's fair value is much higher, implying that the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. The Estee Lauder has a cash-to-debt ratio of 0.59, which ranks better than 53.72% of companies in the Consumer Packaged Goods industry. GuruFocus ranks The Estee Lauder's overall financial strength at 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. The Estee Lauder has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $15.90 billion and an EPS of $3.01. Its operating margin of 12.24% is better than 78.38% of companies in the Consumer Packaged Goods industry. GuruFocus ranks The Estee Lauder's profitability as strong.
Growth is one of the most important factors in a company's valuation. The Estee Lauder's 3-year average revenue growth rate is better than 51.08% of companies in the Consumer Packaged Goods industry. Its 3-year average EBITDA growth rate is 10%, ranking better than 57.16% of companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) is another way to evaluate its profitability. The Estee Lauder's ROIC is 10.48, and its WACC is 9.52, indicating a higher return on invested capital than the cost of capital.
Conclusion
In conclusion, The Estee Lauder Companies Inc. (EL, Financial) stock appears to be significantly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 57.16% of companies in the Consumer Packaged Goods industry. For more details about The Estee Lauder stock, check out its 30-Year Financials here.
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