Estée Lauder’s stock price performance
Over the last 12 months, Estée Lauder’s (EL) stock price rose by ~24% to $91.01, as of August 6, 2015, compared to $73.40 on August 6, 2014. The increase in stock price is primarily due to sales growth and strong 3Q15 results delivered on May 5.
Coty’s (COTY) and L’Oreal’s (LRLCY) stock prices also rose by 64.3% and 16.5%, respectively, over the past year. Coty’s merger with Procter & Gamble’s (PG) beauty brands is one of the prime reasons for the rise in its stock price. To learn more on Coty’s merger with PG’s beauty brands, read “Coty Buys 43 Procter & Gamble Brands: What Investors Should Know.”
Estée Lauder’s return on equity
Estée Lauder’s return on equity, or ROE, for 3Q15[1. Quarter ending March 31, 2015] was 31.7%, the highest amongst peers. Coty and PG had ROEs of 20.3% and 13.6%, respectively, for 3Q15. EL’s ROE was higher than the ROE of the S&P 500 Index (SPY) (VOO) at 13.9%.
EL’s premium market-tilted professional-grade skincare and makeup products earn higher margins than those of competitors such as Avon (AVP) and Unilever (UL), resulting in higher profitability and hence higher returns.
Future stock price drivers
Growing disposable incomes, especially in emerging markets, are shifting growth toward the luxury segment. The retail (XRT) sector in emerging economies has been buoyed by higher consumer spending and increased demand for luxury goods. This provides Estée Lauder immense opportunities to drive sales growth in these economies.
Estée Lauder aims to improve margins by tilting the sales mix toward high-margin skincare and makeup products. This will help strengthen core product categories and result in higher profitability and hence higher returns.
EL and PG have exposure in the Consumer Staples Select SPDR Sector ETF (XLP) with 1.3% and 11.4%[2. Updated on August 6, 2015] of the total weight of the portfolio, respectively.