EL Hits Key Support – Is This The Buying Opportunity?
Estee Lauder Companies (EL) should be on your watchlist. Here is why – it is currently trading in the support zone ($83.09 – $91.83), levels from which it has bounced meaningfully before. In the last 10 years, the stock received buying interest at this level 3 times and subsequently went on to generate 91.8% in average peak returns.
| Peak Return | Days to Peak Return | |
|---|---|---|
| 6/19/2017 | 8.5% | 67 |
| 8/25/2017 | 3.9% | 25 |
| 9/28/2017 | 263.1% | 1559 |
But is the price action enough alone? It certainly helps if the fundamentals check out. For EL Read Buy or Sell EL Stock to see how convincing this buy opportunity might be.
Here are some quick data points:
- Revenue Growth: -8.2% LTM and -6.8% last 3 year average.
- Cash Generation: Nearly 4.7% free cash flow margin and 8.0% operating margin LTM.
- Recent Revenue Shocks: The minimum annual revenue growth in last 3 years for EL was -10.3%.
- Valuation: EL trades at a PE multiple of -29.3
- Opportunity vs S&P: Compared to S&P, you get lower valuation, lower revenue growth, and lower margins
Estee Lauder Companies 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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| EL | S&P Median | |
|---|---|---|
| Sector | Consumer Staples | – |
| Industry | Personal Care Products | – |
| PE Ratio | -29.3 | 24.1 |
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| LTM* Revenue Growth | -8.2% | 5.1% |
| 3Y Average Annual Revenue Growth | -6.8% | 5.3% |
| Min Annual Revenue Growth Last 3Y | -10.3% | -0.1% |
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| LTM* Operating Margin | 8.0% | 18.7% |
| 3Y Average Operating Margin | 9.7% | 17.9% |
| LTM* Free Cash Flow Margin | 4.7% | 13.4% |
*LTM: Last Twelve Months
That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure
What Is Stock-Specific Risk If The Market Crashes?
That said, EL isn’t immune to big drops. It fell 44% in the Dot-Com crash and 62% during the Global Financial Crisis. The 2018 correction pulled it down about 22%, while the Covid sell-off knocked around 34%. The worst was the Inflation Shock, with a 71% slide. Solid fundamentals matter, but when the market pulls back hard, even strong stocks like EL can take a big hit.
But the risk is not limited to major market crashes. Stocks fall even when markets are in good shape – think events like earnings, business updates, outlook changes. Read EL Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
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.