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1 Reason To Avoid Estee Lauder (EL)

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both will help you earn higher than average investment returns and build your wealth.

This is a huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

But most only think of investing well. 

Today, I want to show you 1 Reason To Avoid Estee Lauder (EL) so you can continue building your wealth safely.

1 Reason To Avoid Estee Lauder

It’s Enormously Overvalued

Normally in these articles I talk about profitability, cash flow, the affects coronavirus is having on a company’s financials among other things.

But frankly none of those matter with Estee Lauder (EL) due to its huge valuation.

Estee Lauder is the world leader in the “global prestige beauty market.”  It sells makeup, skin care, fragrance, and hair care products.

Some of its most famous brands are…

  • Estee Lauder
  • Clinique
  • MAC
  • DKNY
  • Michael Kors
  • Ermenegildo Zegna

Among many others.

And its seen large increases in revenues, profits, and cash flows in the last decade.

Revenue grew 62.5% from $8.8 billion in 2011 to $14.3 billion in the trailing twelve months (TTM) period.

EDITORS NOTE – TTM is simply the last 12 months of financial results consecutively.

Operating profits rose 75% from $1.2 billion in 2011 to $2.1 billion in the TTM period.

And free cash flow rose 151.5% from $676 million in 2011 to $1.7 billion in the TTM period.

This fantastic growth in revenues, profits, and cash flows helped skyrocket Estee Lauder shares in this time.

From $38.14 per share at the beginning of 2011 to $231.05 per share as of this writing.

This is an increase of 472.6% in the last decade.

You’re doing well if you earn 10% investment returns per year on the stocks you own.  Estee Lauder produced investment returns of 47.2% per year on average over the last decade.

Its growth should continue as well as makeup, haircare, skin care, and fragrances will never go out of business.

This is all great for Estee Lauder and its shareholders… But it also leads to a huge problem.

It’s massively overvalued.

Its P/E is 124.2.

Its P/CF is 37.2.

And its forward P/E is 43.7.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Estee Lauder crushes this threshold.

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This means you have better chances of earning higher returns owning its stock over time.  These combined make the stock a less risky investment.

With Estee Lauder stock being so overvalued it means there is no margin of safety… That you have a far lower likelihood of making money owning its stock over time.  And these make the stock riskier.

Does this mean I think Estee Lauder stock will crash and burn?

No.  I expect it to continue performing well going forward… But not as well as it did in the past due to its large valuation.

For the reason of its overvaluation I recommend you avoid its stock right now… There are safer, cheaper, and higher return stocks you can buy now.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.


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