Many stocks have been battered this year by persistent economic headwinds, cautious consumer spending, and a murky macro outlook. While that’s created pain for portfolios, it’s also opened the door to potential opportunities — especially for value-focused or contrarian investors willing to stomach some near-term volatility. But with that opportunity comes risk, and in some cases, a falling stock isn’t a hidden gem — it’s a red flag.
Estée Lauder Companies (NYSE: EL) is one of those names that’s been making the rounds in value investing circles. The beauty giant has had a rough stretch, and the market’s been punishing it harshly. Its stock is down significantly from its highs, making some investors wonder: is this a long-term opportunity hidden under short-term noise, or is the business in structural decline? Let’s take a closer look.
Estée Lauder’s Stock Is in Free Fall
There’s no sugarcoating it — the stock has been crushed. Over the past 12 months, Estée Lauder shares have fallen by about 57%, a massive decline for a company that was once considered a reliable, blue-chip name in the beauty space. The last time the stock traded at these levels was over a decade ago, back in 2014.
To some investors, this kind of chart might scream "bargain." After all, the company still has globally recognized brands, an expansive international presence, and a history of profitability. If Estée Lauder can engineer a turnaround, the upside could be significant. In fact, a successful pivot could see the stock double or even triple from today’s beaten-down levels.
That kind of setup — a well-known brand trading at multi-year lows — tends to catch the attention of value hunters.
The Valuation: Cheap on Sales, Not on Earnings
At a surface level, the stock looks attractively priced. Estée Lauder currently trades at a price-to-sales (P/S) ratio of 1.6, which is well below historical norms. For a global brand portfolio with name recognition and shelf space in nearly every major retail market, that’s not a crazy valuation.
However, once you dig into the earnings side of the equation, things get murkier. The company’s forward price-to-earnings (P/E) ratio is sitting around 28 — not exactly what you’d call a value stock. That high multiple reflects both weak current earnings and investor expectations that the company will recover in the future. But whether that rebound actually happens remains a big question.
The valuation here is tricky: you’re not paying much for sales, but you’re paying a lot for uncertain profits. That disconnect tells us the market isn’t entirely convinced Estée Lauder’s business is on stable footing yet.
Is the Core Business in Trouble?
Unfortunately, the fundamentals haven’t looked great lately. In the last six months of 2024, Estée Lauder reported $7.4 billion in revenue, down 6% year over year. That topline weakness wasn’t isolated to one product category either:
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Skincare sales dropped 10%
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Haircare was down 7%
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Makeup declined 2%
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Fragrance was flat — the only segment that didn’t post a decline
These are pretty broad-based declines, and they point to deeper issues than just one bad quarter. Part of the weakness comes from sluggish demand, especially in China and other key growth markets. Another piece of the puzzle is that Estée Lauder has been grappling with overstocked inventory, distribution inefficiencies, and increased competition from both legacy brands and nimble indie players.
To make matters worse, tariffs and trade tensions are becoming an increasingly relevant risk for Estée Lauder. With operations in over 150 countries, the company is heavily exposed to shifts in global trade policy. Tariffs could increase costs, reduce margins, and make it harder for the company to compete internationally — especially if retaliatory tariffs hit luxury and consumer goods.
Estée Lauder has also announced that it may cut up to 7,000 jobs as part of a restructuring plan, signaling that management is aware of how serious the situation is. That kind of move can improve efficiency and lower costs in the long run, but it also suggests that current operations are bloated or misaligned with the company’s direction.
And then there’s the profit side. Estée Lauder posted a $701 million operating loss in the last two quarters. While much of that was driven by $861 million in goodwill impairments and $278 million in restructuring costs, it still paints a picture of a business that is under real financial pressure.
Market Sentiment
Estée Lauder’s Strategic Restructuring for a Turnaround
Estée Lauder’s Profit Recovery and Growth Plan (PRGP) is a critical initiative aimed at tackling the company’s current profitability challenges while laying the groundwork for long-term growth. By the second quarter of fiscal 2025, the company had achieved stronger-than-expected net benefits from the PRGP. However, these gains were outweighed by the impact of declining sales volumes, inflationary pressures, and strategic investments focused on rebuilding sustainable growth.
In response, Estée Lauder recently announced an expansion of the PRGP, which now includes a broader restructuring effort. The objective of this enhanced plan is to reshape the company’s operating model, reinvigorate sales growth, and reestablish a solid double-digit adjusted operating margin over the next few years — all while improving the company’s resilience amid ongoing external volatility.
Estée Lauder’s Ongoing Challenges
While Estée Lauder has made progress on its recovery efforts, it continues to face significant headwinds — particularly in China and the travel retail channel. These persistent challenges weighed heavily on the company’s fiscal 2025 second-quarter performance, with net sales in the Asia Pacific region declining by 11%. The drop was primarily driven by sharp sales contractions in Mainland China, South Korea, and Hong Kong SAR, as consumer sentiment remained subdued.
South Korea was hit especially hard, in part due to Estée Lauder’s November 2024 withdrawal of the Dr.Jart+ brand from travel retail, along with the effects of recent political and social unrest in the region. These declines in historically strong markets are compounding the company’s broader difficulties, as they have long been central to Estée Lauder’s growth strategy.
Adding to the pressure, operating expenses surged by 500 basis points (bps) as a percentage of sales during the quarter. This includes a 210 bps increase in advertising, promotion, and innovation spend, and a 130 bps rise in selling expenses, driven by elevated costs tied to major marketing campaigns, holiday promotions, and expansion in distribution. If these cost pressures aren’t brought under control, they could significantly erode margins and further hinder profitability.
A Weak Near-Term Outlook
Given the headwinds in its Asia travel retail segment, soft consumer demand in China and Korea, and persistent global geopolitical uncertainty, Estée Lauder is anticipating continued turbulence in the months ahead. The company has cautioned investors with a disappointing outlook for the third quarter of fiscal 2025.
Management expects reported net sales to decline by 10% to 12% year over year in the third quarter. On an adjusted organic basis, net sales are projected to fall 8% to 10%. The company also expects a steep decline in profitability, forecasting adjusted earnings per share (EPS) to drop between 69% and 79%, coming in between $0.20 and $0.30. Much of that weakness is attributed to ongoing softness in the global travel retail channel, which remains a significant pain point.
Too Risky to Touch Right Now?
There’s a saying in investing: “Don’t catch a falling knife.” Estée Lauder might look cheap, but there’s a chance the stock hasn’t found a bottom yet. If sales continue to slide and earnings remain under pressure, today’s valuation could still prove too high — especially if the turnaround takes longer than expected or stalls out altogether.
And this isn’t just about macro headwinds. Estée Lauder faces intense competition from newer, more agile brands, especially in the skincare and cosmetics spaces. Consumers, particularly younger ones, are more focused than ever on ingredients, brand values, and online engagement. Legacy brands that don’t adapt quickly enough risk losing relevance — and market share — even in a strong economy.
With so many challenges — from weakening fundamentals to structural industry changes and macro risks like tariffs — Estée Lauder might not be the kind of stock you want to take a blind bet on, even if it looks "cheap" on a price chart.
Bottom Line: A Wait-and-See Play for Now
Could Estée Lauder pull off a successful turnaround? Absolutely. This is still a strong brand with global reach and decades of operating history. If management can right the ship, cut costs, and capitalize on consumer trends, there's meaningful upside here.
But at this point, it’s a high-risk, high-reward scenario. There’s no guarantee of a quick recovery, and further pain could be ahead if the macro backdrop worsens or if the company stumbles operationally.
For investors who are willing to take on volatility and believe in the long-term story, Estée Lauder might be worth a small, speculative position. But for most, this looks like a stock that belongs on the watchlist, not in the portfolio — at least not yet.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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