Is Estee Lauder Companies Stock Overvalued?

EL is down 35% year-to-date

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Estee Lauder Companies Inc (NYSE: EL) is primarily an American cosmetics company. It manufactures and markets skin care, makeup, fragrance, and hair care products. The company owns a diverse portfolio of brands, distributed internationally through both digital commerce and retail channels to approximately 150 countries and territories. Its brand names include Estée Lauder, Aramis, Clinique, Lab Series, Origins, Tommy Hilfiger, M·A·C, La Mer, Bobbi Brown, Donna Karan New York, DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors, and many others.

On June 7, The Estee Lauder Companies announced the opening of its new distribution center located in Galgenen, Switzerland to accommodate the future growth of its global Travel Retail business. The new 300,000 square foot facility expands upon the company’s existing distribution footprint in Switzerland.

Estee Lauder stock has shed 34.7% in 2022, with pressure at the 100-day moving average putting a lid on its late June to early May rally. More recently, the 20-day moving average has emerged as resistance as well. Meanwhile, the stock also offers a very attractive dividend yield of 1.01% with a forward dividend of $2.40.

Nonetheless, Estee Lauder’s valuation remains high at a forward price-earnings ratio of 27.03 and a price-sales ratio of 4.64, considering its growth rate. The compay is expected to grow its revenues and earnings by 8.8% and 10.8% respectively for fiscal 2022. In addition, the company is estimated to increase revenues by 9.5% and 13.6% for fiscal 2023.

Although the business maintains decent growth expectations, it simply isn’t enough to justify EL’s current price. At its current valuation, the stock should be looking to grow 15% or more on the top and bottom line. Moreover, Estée Lauder’s balance sheet provides limited resources for the company’s growth ventures. EL has $3.85 billion in total debt and hold $7.79 billion in cash on their balance sheet, making EL less of an attractive long-term investment.


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