Estée Lauder seems overvalued

Exchange: NYSE

Sector: Consumer Goods

Industry: Personal Products

Entry strategy

Price: $129–133

Stop-loss: $147.5

Take profit: $97

Investment horizon: 3 months

Company details

Estée Lauder Companies Inc. is one of the world's leading manufacturers of skin and hair care products, cosmetics and perfumes. The company's products are sold in more than 150 countries under the brands Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, Tommy Hilfiger, M·A·C and others.

Estée Lauder was founded in 1946. The corporation is headquartered in New York.

The issuer's capitalization is about $46.4 billion (group + Large).

Company financial performance

    On the 31st of October, 2018, the company will publish its financial report for the third quarter of the year. This is an opportunity to open short positions — we expect that the company will not show the best financial results, given

  • negative situation in the stock market as a whole;
  • noticeable slowdown in retail trade due to mutual increase of import tariffs between the US and China.

The current price of $126 per share is relatively high in terms of price to earnings growth indicator (PEG eaquals 2.77). Other major financial multipliers also suggest that the $EL stock is overvalued (Fig. 1).

Figure 1. Comparison of Estée Lauder Companies Inc. ($EL) evaluation with industry multipliers. Source: Simply Wall StreetОткрыть оригинал

The estimated fair value of the $EL stock based on the company's free cash flow is $94. This is significantly lower than the current levels (Fig. 2).

Figure 2. The estimated fair value of the $EL stock based on DCF-method. Source: Simply Wall StreetОткрыть оригинал

Technical analysis (trading plan)

Graph 1. Technical analysis of Estée Lauder Companies Inc. ($EL). Source: TradingViewOpen original image

Published on the 24th of October, 2018


Also published on Medium.