The Estee Lauder (EL, Financial) experienced a daily loss of -7.23% and a 3-month loss of -27.94%. Despite these losses, it reported an Earnings Per Share (EPS) of 2.78. This raises the question: Is the stock significantly undervalued? In the following analysis, we delve into the valuation of The Estee Lauder to answer this question.
Introduction to The Estee Lauder Companies Inc (EL, Financial)
The Estee Lauder is a global leader in the prestige beauty market, participating across skin care, makeup, fragrance, and hair care categories. With top-selling brands such as Estee Lauder, Clinique, M.A.C, La Mer, Jo Malone London, Aveda, Bobbi Brown, and Origins, it operates in more than 150 countries. The Estee Lauder's stock price currently stands at $124.53 per share, with a market cap of $44.60 billion. However, according to the GF Value, an estimation of fair value, the stock is significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line gives an overview of the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is 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 stock of The Estee Lauder is currently believed to be significantly undervalued according to the GuruFocus Value calculation. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Evaluating The Estee Lauder's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. The Estee Lauder's cash-to-debt ratio is 0.4, ranking worse than 53.3% of 1803 companies in the Consumer Packaged Goods industry. However, its overall financial strength is 6 out of 10, indicating a fair financial health.
Profitability and Growth of The Estee Lauder
Investing in profitable companies carries less risk. The Estee Lauder has been profitable 10 years over the past 10 years. Its operating margin of 11.13% is better than 76.78% of 1839 companies in the Consumer Packaged Goods industry. Overall, GuruFocus ranks The Estee Lauder's profitability as strong.
Growth is an essential factor in the valuation of a company. The Estee Lauder's 3-year average revenue growth rate is worse than 58.29% of 1719 companies in the Consumer Packaged Goods industry. However, its 3-year average EBITDA growth rate is 10.2%, ranking better than 57.55% 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 evaluate its profitability. The Estee Lauder's ROIC is 9.07 while its WACC came in at 9.86.
Conclusion
In conclusion, the stock of The Estee Lauder is significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 57.55% of 1529 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
