We recently compiled a list of the 10 Best Beauty Stocks To Buy According to Short Sellers. In this article, we are going to take a look at where Estée Lauder Companies Inc. (NYSE:EL) stands against the other beauty stocks.
The US beauty market, which is seeing major shifts in distribution and customer interaction, continues to be a key area of interest for stakeholders. Beautymatter CEO Kelly Kovack underlined that consumer-driven channels have replaced traditional distribution strategies, compelling companies to engage with customers wherever and whenever they’re most comfortable.
According to a report, the US beauty market is expected to grow to $114 billion by 2027. On the other hand, the prestige channel saw its third straight year of double-digit growth in 2023, rising by 14% to $31.7 billion, outpacing the mainstream market across make-up, skincare, hair, and fragrance, according to the February 2024 CEW conducted annual “Global Trend Report” virtual event. Luxury brands represent the fastest-growing segment, with sales surpassing $16 billion, although being smaller at 11% of the market.
Bigelow Trading’s Daina Nadler emphasized the value of multichannel distribution plans that are customized to a wide range of consumer buying preferences. According to John Cafarelli, CEO of Beautymatter, 87% of US beauty lovers prefer in-store shopping, and 80% of them frequent stores that specialize in beauty products. In-store shopping continues to be popular. In order to increase traffic and loyalty, Space NK’s Noah Rosenblatt and H-E-B’s Jeanne Tamayo stressed the significance of creating compelling retail spaces and solid brand-consumer relationships.
In contrast, although offline retail in China is declining by 4%, e-commerce and social commerce, particularly Douyin, are growing at 9% and 57%, respectively, according to Nielsen IQ. China is a resilient beauty market, and despite all of the difficulties following the pandemic, it remains the world’s second-largest beauty marketposing numerous challenges for international suppliers notes Vice President of Nielsen IQ Gautam Seth. He also points out that local companies are more successful because they employ local ingredients and have a strong cultural connection. Industry giants like Jina Lee of Urang and Kim Da Jeong of Lotte Department Store have stressed the importance of consumer knowledge about ingredients and product efficacy.
The emphasis on diversity is also influencing the global beauty market, although many individuals continue to feel underrepresented in health and beauty advertisements as per Circana. Expectations from consumers about varied representation in terms of gender, color, age, ability, body size, and sexual orientation are at an all-time high. A general market and a multicultural market will not differ by 2044 due to the majority-minority population in the United States. According to a study by SeeMe Index and Circana, brands that are certified inclusive grow 1.5 times faster than brands that are not. Additionally, the likelihood of seeing individuals over 55 in these brands’ advertisements who equally represent straight and homosexual partnerships is 2.5 times higher than that of less inclusive brands, which are 12 times more likely to just feature straight relationships.
Looking ahead, the global beauty market is expected to generate retail sales of over $580 billion by 2027, with an annual growth rate of 6% per report.
One area gaining attention and stimulating beauty business is the growing consumer interest in wellness within beauty. According to a survey on wellness trends in 2024, 82% of US consumers, 87% of Chinese consumers, and 73% of British consumers now rank wellness as a top or important priority in their daily lives. The Goop, one of the “Most Successful Celebrity Beauty Companies in the World,” philosophy is that “beauty is wellness and wellness is beauty.” Beauty firms are entering this space. A massive beauty brand and the Stanford Institute on Longevity have teamed up to develop a new age-reversal technology-powered product.
Methodology:
We sifted through holdings of beauty ETFs and online rankings to form an initial list of 20 beauty stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A close-up of a makeup artist carefully applying Makeup Products to an clients face.
Estée Lauder Companies Inc. (NYSE:HE)
% of shares shorted: 1.48%
Leading the way in the global prestige beauty market, Estée Lauder Companies Inc. (NYSE:EL) offers top-selling brands like Aveda, Bobbi Brown, Clinique, M.A.C., La Mer, Jo Malone London, and Origins.
The company participates in the skin care (51% of Q2 2024 sales), makeup (29%), fragrance (16%), and hair care (4%) categories.
Boasting operations in over 150 countries, the beauty behemoth’s revenue is split as follows: 30% comes from the Americas, 39% from Europe, the Middle East, and Africa (including retail travel), and 31% from Asia-Pacific.
Department shops, travel retailers, specialized multibrand beauty stores, brand-specific freestanding stores, online sales, salons and spas, and perfumeries are some of the channels by which the company distributes its products.
EL, a top supplier of high-end beauty products, has maintained its preferred vendor status on both physical and digital platforms and strengthened its competitive position with market-leading brands in skin care, cosmetics, and fragrances. These characteristics, along with scale-based cost advantages, should promise a sustained competitive advantage that allows the company to generate excess returns for over two decades.
Estee Lauder completed the 2024 fiscal year with mixed results while exceeding estimates for adjusted earnings and revenue. Despite a spike in sales of skincare products, the company faced declining demand in China and North America and declared that CEO Fabrizio Freda will resign at the conclusion of the 2025 fiscal year.
Even though the recent reductions in Chinese and travel retail sales, D.A. Davidson analyst Linda Bolton Weiser kept a Buy rating on Estée Lauder with a $130 price target, noting a potential rebound from inventory concerns as well as positive long-term prospects. Weiser’s target, which is based on a 40-times multiple of the projected $3.25 EPS for 2025, shows confidence in the company’s future performance.
The company has hedge fund sentiments of 47 in Q2 2024. Ken Griffin’s Citadel Investment Group is the largest shareholder in the company, with 3,037,570 shares worth $323.20 million.
Overall EL ranks 5th on our list of the best beauty stocks to buy according to short sellers. While we acknowledge the potential of EL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than EL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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