EL Dropped 6.0% In A Day. Have You Fully Evaluated The Risk?
Estee Lauder Companies (EL) stock is down 6.0% in a day. While history suggests price dips recover, there is risk – specific to growth, profitability and downturn resilience. Consider the following data:
- Size: A $34 Bil company with $15 Bil in revenue currently trading at $89.50.
- Fundamentals: Last 12 month revenue growth of -3.6% and operating margin of 9.0%.
- Liquidity: Has Debt to Equity ratio of 0.3 and Cash to Assets ratio of 0.1
- Valuation: Currently trading at P/E multiple of -39.4 and P/EBIT multiple of -67.6
- Has returned (median) 61.6% within a year following sharp dips since 2010. See EL Dip Buy Analysis.
While we like to buy dips if the fundamentals check out – for EL, see Buy or Sell EL Stock – we are wary of falling knives. Specifically, it is worth trying to answer if things get really bad, and EL drops another 20-30% to $62.65 levels, will we be able to hold on to the stock? What is the worst case scenario? We call it downturn resilience.
Below is a deep dive into Estee Lauder Companies (EL) downturn resilience – specifically, its performance vs the market during past crises? Turns out, the stock saw an impact slightly worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.
Below are the details, but before that, as a quick background: EL provides a wide range of skin care, makeup, fragrance, and hair care products globally, including moisturizers, serums, cleansers, fragrances, and body care items.
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2022 Inflation Shock
- EL stock fell 71.9% from a high of $371.86 on 4 January 2022 to $104.51 on 1 November 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
- The stock is yet to recover to its pre-Crisis high
- The highest the stock has reached since then is $157.94 on 13 March 2024 , and currently trades at $89.50
| EL | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -71.9% | -25.4% |
| Time to Full Recovery | Not Fully Recovered days | 464 days |
2020 Covid Pandemic
- EL stock fell 34.3% from a high of $219.88 on 17 January 2020 to $144.38 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 28 August 2020
| EL | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -34.3% | -33.9% |
| Time to Full Recovery | 158 days | 148 days |
2018 Correction
- EL stock fell 22.5% from a high of $158.03 on 15 June 2018 to $122.46 on 24 December 2018 vs. a peak-to-trough decline of 19.8% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 22 February 2019
| EL | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -22.5% | -19.8% |
| Time to Full Recovery | 60 days | 120 days |
2008 Global Financial Crisis
- EL stock fell 62.9% from a high of $26.87 on 8 September 2008 to $9.97 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 1 February 2010
| EL | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -62.9% | -56.8% |
| Time to Full Recovery | 329 days | 1480 days |
Worried that EL could fall much more? You could take a look at the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.