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Estée Lauder (EL -2.40%) has long been a hallmark in the cosmetics industry, celebrated for its legacy spanning nearly 80 years. However, current trends suggest that the iconic brand faces significant challenges, particularly as it grapples with declining performance in a swiftly changing market.
The company’s stock has plummeted an astonishing 78% from its pandemic peak. Contributing factors include weakening sales in China, loss of market share to rapidly expanding competitors such as e.l.f. Beauty, and diminishing profit margins, all of which have collectively driven the stock downward.
As we move deeper into 2025, one must consider whether there’s a viable path to recovery for Estée Lauder’s stock. Below, we explore the arguments for buying, selling, or holding this investment.
Potentially Buy Estée Lauder Stock
Despite its current difficulties, Estée Lauder is implementing strategies aimed at reversing its fortunes. Last year, the company initiated its Profit Recovery and Growth Plan, targeting enhancements to profit margins throughout fiscal 2025 and into 2026. Key components of this initiative include aims to improve gross margins and reduce operational costs, with a goal of achieving an additional $800 million to $1 billion in operating profit.
Preliminary results from this strategy show some success in margin improvement, although sales continue to decline. In the first fiscal quarter that ended in September, the gross margin increased from 69.6% to 72.4%, attributed to a 13% reduction in the cost of sales.
Moreover, adjusted earnings per share climbed slightly from $0.11 to $0.14, although the company’s decision to cut its dividend indicates that the path to recovery may take more time and resources than previously anticipated.
Another argument in favor of buying Estée Lauder is the fact that the stock is trading at a significant discount compared to its historical performance. Although it may not reach previous highs, considerable potential exists for recovery if the company’s plans gain momentum and market conditions, particularly in China, improve.
Reasons to Sell Estée Lauder Stock
On the flip side, selling Estée Lauder could be justified if one views the company as fundamentally flawed and sees no signs of recovery in the Chinese market.
The country has experienced economic stagnation since 2022, influenced by the lingering effects of the pandemic and a slow rebound in consumer spending. Reportedly, Estée Lauder’s revenues dropped by 11% in the Asia-Pacific region during the first fiscal quarter, with an even steeper decline in China.
Additionally, competition from more agile brands like e.l.f. Beauty is intensifying, and traditional retail partners, such as department stores, are facing challenges from more modern retailers like Sephora and online outlets.
As long as these negative trends persist, particularly among younger consumers who are increasingly opting for alternate brands, regaining lost market share may prove difficult for Estée Lauder.
Holding Estée Lauder Stock
Adopting a wait-and-see strategy may be prudent, given that Estée Lauder’s turnaround efforts are still underway and the situation in China remains unpredictable.
External factors, including the geopolitical climate, tariffs, and the impact of a strong dollar, further complicate the outlook for multinational firms like Estée Lauder, though the exact effects of these tariffs remain uncertain.
While the stock may not seem inexpensive in light of its dwindled profits, selling at this juncture would forego any potential benefits should a rebound occur.
Final Thoughts
While Estée Lauder’s road to recovery appears to be fraught with challenges, it remains a stock worth holding onto for now. The company boasts a portfolio of well-established brands such as Clinique, Aveda, and MAC, and demand for luxury beauty products is anticipated to improve as consumer spending rebounds and inflation stabilizes.
Investors will need to exercise patience, acknowledging that current profits are under pressure. However, discarding a longstanding player like Estée Lauder in the midst of a downturn could be a miscalculation.
Source
www.fool.com