How Can The Current Surge In Demand For Premium Beauty Boost Estee Lauder in 2016?
According to a Bloomberg report, there has been a recent growth in the sale of premium beauty products. L’Oreal’s premium categories were its fastest growing segment in the first quarter of 2016. The lipstick index, a term coined by Leonard Lauder, suggests that when women cannot afford high priced luxury goods, they turn to affordable luxury products (in this case, the premium beauty items). With the passage of time, people’s purchasing power has increased resulting in these premium cosmetics to be more affordable among many women. The rise in sales in beauty, in turn, is in contrast with the decline in sales for other more expensive luxury items such as leather goods and apparels. Hence, a slow economy in reality helps the beauty manufacturers to grow.
This trend will no doubt help in growing the sales of the premium beauty giant Estee Lauder.
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Makeup and Skincare are the two most important segments for Estee Lauder accounting for 40% and 47% of our current stock price estimate, respectively. Here we see that our growth expectations for 2016 in the said divisions are quite low. In fact, going by the 2015 trend, we expect that Estee Lauder’s skincare revenues might further decline in 2016. However, going by the present trend in the surge of demand for premium cosmetics, if Estee Lauder’s revenues for each of the Makeup and Skincare segment grow by ~5% in 2016, then the stock price for the company can witness over 5% growth.
Have more questions about Estee Lauder? See the links below.
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