The Estee Lauder Companies Inc (EL, Financial) recently reported a daily gain of 4.3%, yet it has experienced a 3-month loss of -1.27%. With an Earnings Per Share (EPS) of $1.52, investors are keen to understand whether the stock is significantly undervalued. This article delves into a detailed valuation analysis to uncover the answer and encourages readers to explore the financial intricacies of The Estee Lauder (EL).
Company Introduction
The Estee Lauder Companies Inc (EL, Financial) leads the global prestige beauty market, with a diverse portfolio in skin care, makeup, fragrance, and hair care. The company's brands, such as Estee Lauder, Clinique, and M.A.C, have a strong presence in over 150 countries. Despite its current stock price of $149.02, the GF Value suggests a fair value of $243.25, indicating that the stock may be significantly undervalued. This discrepancy sets the stage for an in-depth valuation analysis.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line indicates the fair trading value of the stock. When a stock's price lies significantly below the GF Value Line, it suggests potential for higher future returns. Currently, The Estee Lauder (EL, Financial) appears significantly undervalued, with a price far below the GF Value Line, implying that its long-term stock return could outpace its business growth.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. The Estee Lauder's cash-to-debt ratio of 0.31 ranks below 60.39% of peers in the Consumer Packaged Goods industry. Despite this, its financial strength is rated 6 out of 10, reflecting a fair balance sheet.
Profitability and Growth
A consistent track record of profitability offers investors a safer bet. The Estee Lauder has been profitable for 10 years, with a revenue of $15.50 billion and an Earnings Per Share (EPS) of $1.52 over the past twelve months. Its operating margin of 7.79% stands above 64.68% of its industry counterparts, earning a profitability rank of 9 out of 10.
Growth is a pivotal factor in valuation. Although The Estee Lauder's 3-year average revenue growth rate is below 58.79% of the industry, its 3-year average EBITDA growth rate of 10.2% is quite competitive, indicating the company's ability to create shareholder value through profitable growth.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) helps assess a company's value creation. The Estee Lauder's ROIC of 5.63 is currently below its WACC of 8.96, suggesting that it may not be generating sufficient returns on its investments.
Conclusion
Overall, The Estee Lauder (EL, Financial) stock exhibits signs of being significantly undervalued. The company maintains a fair financial condition and strong profitability. Its growth is promising compared to many of its industry peers. To gain a deeper understanding of The Estee Lauder's financial health, interested parties can review 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.
