Estee Lauder has been among the best beauty stocks to buy. The stock’s price has risen 7.14% year-to-date and 53% since March 23rd earlier this year. Compare that with comparable brands like L’Oreal, which is up 6.5% since the beginning of 2020 and Revlon, which is down a huge 64% year-to-date.
Other than the strong stock performance, Estee Lauder is also a wide-moat business. It is one of the most recognizable brands among beauty and cosmetics stocks. It has also made a major shift towards e-commerce during the pandemic. Online sales now account for 22% of the fiscal year 2020 sales and 40% of Q42020 sales. The overall trend towards online means that Estee Lauder’s online sales are likely to persist even post the pandemic. In a way, the company has aligned itself with the broader direction in which retail seems to be headed.
Emerging markets are another driver of future growth. The average spend on prestige beauty is significantly less in the developing world than in the developed world. For example, the US average per capita spend on prestige beauty is $276 a year as opposed to $2 in India. So, the growth runway appears to be quite long for strong brands like Estee Lauder.
The key near-term challenges for the company are the high proportion of sales from global department stores (39%) and travel retail (23%). Both of these channels are significantly impacted by the pandemic and there is no clarity on when they will recover.
However, what makes Estee Lauder an attractive candidate for investors looking to buy cosmetics stock is the fact that the company is looking towards online. Nearly 75% of its ad spend is now being dedicated to digital marketing. The company spends more than 23% of its revenue on advertising and promotion as compared to a global average of 19%. The result is a strong brand that gives Estee Lauder pricing power. This quality is a feature of the best cosmetics stocks. Estee Lauder’s stock closed at $220.99 on 1st September 2020, up 11.52% for the past month.
