Stock price when the opinion was issued
EL is a high-quality consumer staple name, which has always traded at a premium valuation. However, EL’s revenue has declined for two years in a row now, which has investors concerned. We think EL is in a bit of turnaround situation now, which we try to stay away from (most turnarounds rarely turn or take longer than expected), we would like to see revenue growth recover before getting interested in EL. Growth out of China is not helping but competition does look like it is increasing across the board as well and we wonder a bit if EL is having trouble adjusting to newer marketing channels that are being used.
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Fundamental driver of business very strong - vanity products. Long history of well established brands. China growth has slowed, but overall is optimistic on company. Not founder run, but founder still owns large chunk of business. Is ~1% position in portfolio. Will keep buying on share price weakness.
He'd own it for the next couple of months, but questions the next couple of years. Clinique is strong, but has lost some of its brand "heat". Weaker topline. Revenue coming down at the same time as costs are inflating. Tactically bullish if you believe the spurt in China is real, but tends to get more competitive over the long term, and that will come home to roost for EL over a 5-year horizon.
See his Top Picks for a more durable idea.
It reported a beat this morning, but they always set a really low bar in earnings, and the long-time CEO announced his retirement. The CEO guided it to great heights, but recent disastrous declines in earnings. The pandemic hurt their Chinese sales and that has never recovered; also, airport sales haven't recovered. Since the start of 2022, Estee Lauder has sank 75% while ELF has soared 382%. Lauder maintained high prices to protect their margins, but that may be working anymore.