The Estee Lauder Companies Inc (EL, Financial) has seen a day's gain of 3.13% and a 3-month loss of -14.4%. The Earnings Per Share (EPS) stands at 2.78, raising the question: is this stock significantly undervalued? This article will provide an in-depth valuation analysis of The Estee Lauder, encouraging readers to delve into the financials of the company.
Company Introduction
The Estee Lauder is a global leader in the prestige beauty market, with a diverse portfolio of brands across skin care, makeup, fragrance, and hair care categories. The company operates in over 150 countries, generating revenue from various regions and different sales channels. Despite a current share price of $163.57, the GF Value suggests a fair value of $253.4, indicating that the stock may be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that calculates a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is deemed overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
The Estee Lauder's stock appears to be significantly undervalued based on GuruFocus's valuation method. The company's market cap stands at $58.50 billion, suggesting that the stock could offer high future returns. Since The Estee Lauder is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Assessing Financial Strength
Before investing in a company, it's crucial to evaluate its financial strength. Companies with weak financial strength pose a higher risk of permanent loss. The Estee Lauder's cash-to-debt ratio of 0.4 is lower than 53.86% of companies in the Consumer Packaged Goods industry, suggesting fair financial strength.
Profitability and Growth
Consistent profitability over the long term reduces investment risk. The Estee Lauder has been profitable for the past 10 years, boasting an operating margin of 11.13%, which ranks higher than 76.62% of companies in the Consumer Packaged Goods industry. However, the 3-year average annual revenue growth of 4.2% ranks lower than 57.84% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also help evaluate profitability. The Estee Lauder's ROIC stands at 9.07, slightly below its WACC of 9.37.
Conclusion
In summary, The Estee Lauder's stock appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 57.26% of companies in the Consumer Packaged Goods industry. To learn more about The Estee Lauder's financials, 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.
