The Estee Lauder Companies Inc (EL, Financial) recently showcased a daily gain of 5.31%, yet its performance over the last three months reflects a 13.46% loss. With an Earnings Per Share (EPS) of $1.52, investors may wonder if the stock is significantly undervalued. This article embarks on a valuation analysis to address this query, inviting readers to delve into the subsequent financial review.
Company Introduction
The Estee Lauder Companies Inc (EL, Financial) is a leading player in the global prestige beauty market, renowned for its diverse portfolio of skin care, makeup, fragrance, and hair care products. With a presence in over 150 countries and a balanced revenue distribution across the Americas, Europe, the Middle East, Africa, and Asia Pacific, The Estee Lauder stands as a formidable entity in its sector. As we compare The Estee Lauder's current stock price of $138.95 to the GF Value of $242.84, a measure of fair value, it becomes evident that the company's stock might be trading at a significant discount.
Summarize GF Value
The GF Value is a proprietary metric that assesses the intrinsic value of a stock, taking into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The Estee Lauder's stock is deemed significantly undervalued, indicating a potential for higher future returns than its business growth alone might suggest. At its current market cap of $49.70 billion, the discrepancy between the stock price and the GF Value presents an intriguing opportunity for investors.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
When considering an investment, the financial strength of a company is paramount to avoid the risk of capital loss. The Estee Lauder's cash-to-debt ratio of 0.31 ranks in the middle of the industry, leading to a financial strength rating of 6 out of 10. This suggests that while there are areas to watch, the company maintains a fair balance sheet.
Profitability and Growth
Consistent profitability is a less risky bet for investors, and The Estee Lauder has a decade-long track record of profitability. With a revenue of $15.50 billion and an EPS of $1.52, coupled with an operating margin that outperforms over 64% of its industry peers, The Estee Lauder's profitability is ranked at 9 out of 10. Furthermore, the company's growth metrics, including a 3-year average annual revenue growth rate of 4.2% and an EBITDA growth rate of 10.2%, underscore its potential for continued expansion.
ROIC vs WACC
An insightful way to evaluate a company's profitability is by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Ideally, the ROIC should exceed the WACC, indicating efficient capital allocation. The Estee Lauder's ROIC stands at 5.63, below its WACC of 9.56, suggesting an area for potential improvement.
Conclusion
In conclusion, The Estee Lauder Companies Inc (EL, Financial) is currently positioned as significantly undervalued. With a stable financial condition and robust profitability, the company's growth prospects appear promising when compared to its industry counterparts. To gain a deeper understanding of The Estee Lauder's financial health, interested parties are encouraged to explore its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please visit the GuruFocus High Quality Low Capex Screener.
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.
