Key Points
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Estée Lauder’s turnaround is working, but it’s a margin plan, not a growth plan.
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Reclaiming the 2022 high would mean nearly tripling the stock.
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Estée Lauder Companies (NYSE: EL) peaked at about $134 billion in early 2022. Today it’s worth around $39 billion, and the cosmetic and beauty stock has rallied this year because CEO Stéphane de La Faverie’s turnaround is working. Here’s the catch for anyone expecting a round trip: Everything Estée Lauder is doing is designed to make it a tighter, more profitable company, not a bigger one. Reclaiming $100 billion would mean nearly tripling the stock, and the plan on the table doesn’t aim for that.
What the $134 billion was actually made of
The 2022 peak was mostly a China story. Chinese travelers buying La Mer in duty-free shops in Hainan and Seoul drove the growth, and investors paid up for it. That channel collapsed, inventory piled up, and the stock lost roughly three-quarters of its value. The old high was a snapshot of one channel at its most crowded moment, not a measure of the brand portfolio.
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De La Faverie isn’t abandoning that market. On Nov. 4, the company will host a capital markets event in Shanghai, pitching China as the “blueprint” for its global playbook, and it reaffirmed its travel retail commitment at the Cannes duty-free show in September, per Moodie Davitt.
Beauty Reimagined is a margin plan, not a growth plan
The Beauty Reimagined strategy prioritizes procurement, supply chain, outsourcing, a flatter organization, and a return to a “solid double-digit” operating margin. Growth shows up as “expanding consumer coverage,” which in practice means Clinique on Amazon, Bobbi Brown out of department stores and onto social media, and an emphasis on fragrance houses like Le Labo and Tom Ford. Those are smart moves. They recapture lost share, which is different from opening new markets.
The clearest tell came when merger talks with beauty giant Puig fell apart. De La Faverie called any transformational deal that distracts from the plan a “nonstarter” and said the company will stick to minority stakes and single-brand purchases, per Women’s Wear Daily.
Meanwhile, the stock already trades at a higher forward earnings multiple than L’Oréal, which is bigger and steadier and never needed a rescue. Investors are paying for the recovery before it’s finished. Estée Lauder is a reasonable holding for someone who wants a cleaner, more profitable beauty company growing in the low-to-mid-single digits. That’s what de La Faverie is building. Just don’t buy it for the old highs. The $134 billion company depended on a channel it now treats with caution, and the plan is organized around not repeating that.
I’d own it for the margin story and expect the market cap to follow earnings, not nostalgia.
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Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
