It Is Time to Dump Estée Lauder

It has been over a year since I recommended buying both Estée Lauder (EL) and Ulta Salon (ULTA). While Ulta Salon has appreciated over 50% since then, Estée Lauder is up only 10%. I recently changed my stance on Ulta Salon due to its overvaluation and recommended investors to book profits. In this article, I will focus on the valuation of Estée Lauder and give a few reasons as to why investors should sell the stock now.


Like Ulta Salon, I think Estée Lauder is also overvalued.
Despite the fact that both these stocks have traded at expensive valuations historically, I think both of them are expensive at this point in time. Estée Lauder is currently trading at 29x trailing earnings and the company’s recent quarterly results do not come close to justifying its valuation.

In the latest reported quarter, Estée Lauder posted EPS of $0.43, beating the analysts’ estimates by $0.03. On the revenue front, Estée Lauder posted sales of $2.65 billion, missing the consensus by $10 million. The company’s revenue increased only 5.2% on a year over year basis.
It Is Time to Dump Estée Lauder
Image by annca / Pixabay
Going by Estée Lauder’s valuation, the revenue growth is nowhere near good enough to justify its valuation.

A company trading at 30x earnings should be reporting at least 25% revenue growth for two years. Even in the Q3 FY2016, Estée Lauder’s year over year revenue growth stood at just 3.1%. Given that Estée Lauder’s revenue growth is nowhere around that figure, I think the stock is overvalued and will face severe selling pressure going forward.

The market wasn’t pleased with Estée Lauder‘s earnings and guidance as the company’s shares retracted almost 3.4% after the company reported the Q4 results. To further put Estée Lauder’s overvaluation into perspective, the company’s trailing 12 months sales stand at roughly $11.6 billion and the company’s current market cap is $33.86 billion.

The company is trading at almost 3x trailing sales and given that it is not a growth stock, I think the valuation is again expensive.


Although Estée Lauder has always traded at a high P/E historically, I think the stock can no longer justify its valuation. As mentioned above, Estée Lauder’s slow growth, coupled with its high valuation, should push the stock lower in the coming weeks. Investors looking to enter the stock for the long-term should wait for at least a 10% pullback. However, as of now, I think Estée Lauder is a sell.

Disclosure: No position
Published on Aug 22, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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