Despite The Estee Lauder Companies Inc (EL, Financial) recording a daily loss of -1.92% and a 3-month loss of -23.94%, the stock's Earnings Per Share (EPS) (EPS) stands at 2.78. This raises the question: Is the stock significantly undervalued? This article presents a detailed valuation analysis of The Estee Lauder (EL), aiming to provide valuable insights to potential investors.
Company Overview
The Estee Lauder Companies Inc (EL, Financial) is a leading global prestige beauty market player, offering a diverse range of products across skin care, makeup, fragrance, and hair care categories. The company operates in over 150 countries, with a significant market presence in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. With a current stock price of $144.79 per share and a market cap of $51.80 billion, The Estee Lauder's GF Value stands at $254, indicating that the stock may be significantly undervalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a snapshot of the fair value at which a stock should ideally be traded. If a stock's price significantly exceeds the GF Value Line, it is likely overvalued and may offer poor future returns. Conversely, if the price is significantly below the GF Value Line, the stock could be undervalued and may offer high future returns.
As per GuruFocus' valuation method, The Estee Lauder (EL, Financial) is significantly undervalued. Given this undervaluation, 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 low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. The Estee Lauder has a cash-to-debt ratio of 0.4, which ranks worse than 53.04% of 1795 companies in the Consumer Packaged Goods industry. Based on this, GuruFocus ranks The Estee Lauder's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. The Estee Lauder has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $15.90 billion and Earnings Per Share (EPS) of $2.78. Its operating margin is 11.13%, which ranks better than 76.59% of 1841 companies in the Consumer Packaged Goods industry. Overall, GuruFocus ranks the profitability of The Estee Lauder at 9 out of 10, which indicates strong profitability.
Growth is one of the most important factors in the valuation of a company. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. The Estee Lauder's 3-year average revenue growth rate is worse than 57.98% of 1716 companies in the Consumer Packaged Goods industry. The Estee Lauder's 3-year average EBITDA growth rate is 10.2%, which ranks better than 57.22% of 1524 companies in the Consumer Packaged Goods industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also provide insights into its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, The Estee Lauder's ROIC is 9.07 while its WACC came in at 9.45.
Conclusion
Overall, The Estee Lauder (EL, Financial) stock is believed to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 57.22% of 1524 companies in the Consumer Packaged Goods industry. To learn more about The Estee Lauder stock, you can check out its 30-Year Financials here.
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