Despite their appearance as a contemporary convenience, beauty cosmetics have a long history stretching back to ancient Egypt. Humans have used cosmetics to hydrate their skin or enhance its look for thousands of years, and cosmetics have evolved from home-made goods to a major industry.
Global brands and internet start-ups compete for market dominance in a sector that benefits from being recession-resistant as a subsector of consumer staples—items like food or cleaning supplies that people buy regardless of the status of the wider economy. Since many luxury cosmetics businesses also produce consumer staples, the market serves as a cross between the two, combining both advantages.
A fast-growing market in China, the hybrid character of cosmetics, and the rapid impact of social media platforms like Instagram on demand for beauty goods make the cosmetics industry enticing investors.
Everett Lauder
Estee Lauder is a standout performer in the business. The business was founded after World War II, but it has become a dominant force in its sector with various alluring brands. Its stock has increased by more than 500% in the last ten years.
Some of Estee Lauder's brands are Bumble & Bumble, Aveda, and La Mer. In 2020, when the COVID-19 epidemic devastated a large portion of the beauty sector, the firm outperformed its competitors thanks to the burgeoning market it had discovered for its high-end skincare products.
Estee Lauder reported a revenue increase of 13.4% from the previous year and 9% from fiscal 2019 for the fiscal year ending June 30, 2021. Skincare goods accounted for the business's operational profitability the previous year and more than half of its sales in fiscal 2021. This ability to withstand the epidemic better than other cosmetic products, which are more often used in social settings, is crucial.
The business has also grown explosively in Asia, where sales have increased by approximately 50% over the last two years. Most of the development is in China, where a growing middle class embraces its skincare products. 36% of sales were generated in China last year, which includes the nation's rapidly expanding travel retail segment (beauty products are big sellers in duty-free shops in airports and elsewhere). With those positive factors, the firm seems to be in a strong position for long-term development.
Since purchasing the cosmetics division of Procter & Gamble (NYSE: PG) for $12.5 billion in 2015, which includes Cover Girl and several other mass-market brands, Coty has had difficulties. But over the last five years, Coty has suffered greatly as consumer demand has shifted away from the mass market to the prestige market.
However, the business is now undergoing a positive comeback. To acquire funds for the debt accrued due to the P&G transaction, it sold off the bulk of its shares in Wella, its professional hair care division. This contributed to the business being more successful and flexible with money.
Now that JAB Holdings of Germany owns the bulk of the business, it is clear that they believe the stock will rise in value. Additionally, a new CEO has been hired, and social media has been used as a growth engine. Coty entered a strategic alliance with Kylie Jenner by purchasing a 51% share in her cosmetics business, Kylie Cosmetics.
Revenue for the fiscal year 2021 that ended on June 30 was down 2%, but the business anticipates considerable growth in the next year as it exits the pandemic's early phases. The stock is still reasonably valued, so a positive recovery might send it far higher.
Ulta Cosmetics
One of the few opportunities in the cosmetics sector is Ulta Beauty. The business sells cosmetics, and its outlets may be located in strip malls all around the nation. Additionally, the company's hair salons assist in bringing customers into its shops, providing it a competitive edge over rival brick-and-mortar businesses like Sephora.
Throughout its existence, the firm has consistently increased comparable sales, and the stock has been a consistent winner, rising more than 400% in the last ten years. Ulta and Target (NYSE: TGT) agreed to add 100 shops within Target buildings over the next years, giving the firm another growth opportunity.
The firm, like the majority of physical stores, suffered throughout the epidemic, but now things are looking well for the company. Its performance is above pre-pandemic levels and on course to set records this year. Its profits per share are close to $15, a significant increase over pre-pandemic levels.
Ulta is positioned for ongoing development in light of the wider positives in the cosmetics industry and the company's distinctive business approach.
L'Oreal
L'Oreal, the largest cosmetics firm in the world, has partnerships with a wide range of brands, including Diesel, Giorgio Armani, and Yves Saint Laurent.
L'Oreal has been making strong investments in e-commerce, a sector of the cosmetics industry that is quickly growing, particularly in light of the epidemic. It has embraced social commerce, switched marketing budgets to social media, and incorporated technological innovations like virtual try-on. The business claims that online cosmetics sales increased by 40% in 2020 and now account for 22% of the industry. E-commerce accounted for 27% of L'Oreal's overall sales in 2020.
In a very difficult climate, sales declined only 4% last year, which was a pretty excellent result, and the firm increased its market share. Comparable sales increased by 21% in the first half of 2021, and the operating margin increased from 18% to 19.7%.
This large margin demonstrates the company's robust operations and business diversity. A roughly equal distribution of sales across North America, Europe, and Asia further demonstrate L'Oreal's position as the industry leader on a worldwide scale.
Interparfums
Interparfums, a fragrance-focused company, produces and sells high-end fragrances and cosmetics for labels including Coach, Moncler, and Oscar de la Renta. In 2020, during the height of the pandemic, the fragrance industry crashed, but Interparfums is currently doing better than ever. Like many of its rivals in the cosmetics industry, it has seen a resurgence in commerce.
Revenue increased by 25% to $207.6 million in the second quarter of Q2 2019, while operating income increased by 100% to $44.7 million. The business is adding new items, fostering development, and showcasing its capacity for innovation. It recently signed a 10-year agreement to produce perfumes under the Ferragamo brand.
Skin Nu (NUS)
American corporation Nu Skin creates and markets cosmetics and dietary supplements under the Nu Skin and Pharmanex names. Nu Skin was established in 1984, and a year later, it started doing business in Asia by opening an office in Hong Kong. The company's shares were admitted to trading on the New York Stock Exchange in 1996. Through a network of almost 1.2 million independent distributors, the corporation sells its goods in 54 different countries.
Unilever (UN)
Anglo-Dutch business Unilever has 400 brands and offices in the Netherlands and the United Kingdom. The business produces and distributes various consumer items, including food, drinks, hygiene, home goods, and cosmetics. Unilever is a member of the FTSE 100 Index and is listed on the London Stock Exchange.
Shiseido (SSDOY)
Shiseido is the oldest cosmetics firm in the world and the biggest maker of cosmetics and beauty goods in Japan. There are 26 brands in the group, broken down into categories including prestige, fragrance, cosmetics, personal care, and professional care. The business holds several subsidiary brands and goods sold under the Shiseido name.
e.l.f. Cosmetics (ELF)
e.l.f. Cosmetics (ELF) is an American cosmetics company that sells anything from makeup to skincare items. The firm claims that every one of its products is 100% vegan and devoid of animal products. The company's online shop generates more than half of its revenue and has more than 20 million global followers on social media.
Beiersdorf (BDRFY)
A German multinational corporation headquartered in Hamburg, Beiersdorf produces personal care products and is traded on the Frankfurt Stock Exchange. The Günter Herz family's holding company, Maxingvest, governs the business. Nivea, Tesa, Labello, Eucerin, and Hansaplast are just a few of its well-known brand names.
Do you want to invest in cosmetics stocks?
The financial media pays little attention to cosmetics firms, and most investors pass them by. However, the sector as a whole combines dividend income with strong development in an established market. The enormous margins many businesses achieve are also a result of their brand licensing agreements and the luxurious character of many items.
P/E ratios in the industry might sometimes be high. But for most investors, it's worthwhile to take a deeper look at these cosmetics stocks since they provide options for practically all types of investment.
These are the cosmetics stocks with the lowest price-to-earnings (P/E) ratio during the last 12 months. A low P/E ratio indicates you're paying less for each dollar of profit created since earnings may be distributed to shareholders as dividends and buybacks.
Ulta Beauty Inc.: Ulta Beauty runs a network of cosmetic shops in the United States. The business offers salon services, cosmetics, skin- and hair-care items, and perfumes. It stands out from the rest of our list in that it belongs to the consumer discretionary industry rather than the consumer staples industry. Ulta released its Q1 FY 2022 earnings on May 26. The quarter concluded on April 30. On the strength of excellent year-over-year sales increase, net income rose by 43.9%. (YOY). The business said that fewer COVID-19 limitations this quarter compared to the same quarter last year had a positive influence on sales.
Kao Corp.: Kao is a Japanese company that produces chemicals and home goods. The business also offers culinary oils, fatty chemicals, washing and cleaning supplies, and cosmetics.
Incorporated by The Estée Lauder Companies: A wide variety of skincare, cosmetic, fragrance, and hair care products are produced and sold by Estée Lauder. Results for Q3 of FY 2022, which concluded on March 31, were released by the firm on May 3. As net sales increased by 9.9% YoY, net profits increased by 25.1%. The corporation saw significant expansion in the Americas, Europe, the Middle East, and Africa.
According to a growth model, these are the best cosmetics stocks that award firms based on a 50/50 weighting of their most recent quarterly YOY earnings-per-share (EPS) growth and their most recent quarterly YOY percentage sales growth. The success of a corporation depends on both sales and profits. Ranking businesses based on a single growth statistic exposes them to accounting irregularities that quarter (such as changes in tax legislation or restructuring charges), which might render one or the other number inaccurately indicative of the company's overall performance.
Olaplex Holdings Inc.: Olaplex is a beauty brand that sells high-quality hair care items. The business offers its goods to shops, customers on their own, and salons. On May 11, Olaplex released its Q1 2022 results. Robust net sales growth, driven by big improvements across the company's Professional, Specialty Retail, and Direct-To-Consumer business lines, resulted in a 36.1% year-over-year rise in net income.
The Best-Performing Cosmetics Stocks
These are the stocks in the cosmetic industries that, among the businesses we looked at, had the highest returns or the lowest drops in total return during the last 12 months.
Inc. Ulta Beauty See the business description up top.
e.l.f. "Beauty Inc.": e.l.f. Beauty mostly offers inexpensive cosmetics for the face, lips, and eyes. Along with other things, it sells eyeliners, lipsticks, powder, and skin care items. e.l.f. said on April 20 that Jennie Laar would start working for the organization on May 16 as senior vice president and chief commercial officer. Rich Baruch is replaced in the role by Laar. Laar most recently served as Forma Brands LLC's senior vice president of worldwide wholesale.
BERESSORF AG: The German corporation Beiersdorf AG creates, produces, and sells skincare and personal care products. Nivea, Eucerin, La Prairie, Labello, and Hansaplast are in its product line-up.
Conclusion
Companies that produce, promote, and sell cosmetics include those that create cosmetics, including creams, lotions, shampoos, and makeup. With projected global sales of more than $500 billion in 2020, it is without a doubt one of the fastest-growing sectors in the world. This has undoubtedly increased the value of cosmetic companies and drawn in investors from around the world.
Every area of life experienced uncertainty as 2020 dawned, and the cosmetics sector is no different. National Purchase Diary NPD reports that frequent facemasks decreased beauty product sales, particularly lipsticks, by 24% during the first half of 2020. The share price of well-known cosmetic firms like Coty Inc. (NYSE: COTY) fell by 52% in March. In the same vein, Ulta Beauty, Inc.'s (NASDAQ: ULTA) stock price dropped 29% in the early days of the epidemic. Even though these stocks have recovered, Vogue Business forecasts that sales of color cosmetics will fall by an average of 2% this year.
Conversely, the epidemic was a boom time for the skincare industry. Customers are starting to prefer using natural and organic products for their skin instead of some chemically induced effective items; in a McKinsey & Company research, 36% of customers favored using natural goods over alternatives. By 2025, it is anticipated that skincare sales will reach $181 billion globally.
The lockdown brought on by the epidemic increased e-commerce sales. Ulta Beauty, Inc. (NASDAQ: ULTA) reported a 16% growth in online orders during the first quarter of 2021. The business's entire revenues increased by over 65% in the first quarter, making it one of the top stocks in the cosmetics industry.
The worldwide cosmetic industry is anticipated to reach $463.5 billion by 2027, rising at a CAGR of 5.3%, according to research by Allied Market Research. There are many prospects for investors considering the value of the beauty industry has expanded due to shifting trends and increasing sales.
Due to their great stock performance, significant beauty juggernauts, such as Inter Parfums, Inc. (NASDAQ: IPAR), Revlon, Inc. (NYSE: REV), and e.l.f. Beauty, Inc. (NYSE: ELF) is attracting investors' attention. Inter Parfums, Inc. (NASDAQ: IPAR) has historically shown strong performance, with the stock price increasing by more than 157% over the last five years. The net sales of e.l.f. Beauty, Inc. (NYSE: ELF) increased by 21% as well.
But even for the wealthy, investment is becoming harder and harder. The effects of the shifting financial environment are being felt across the entire hedge fund business. Since its hedged returns couldn't match the market indexes' unhedged returns during the past ten years, its reputation has taken a hit. The S&P 500 ETFs, on the other hand, have beaten them by more than 124 percentage points since March 2017, according to an analysis conducted by Insider Monkey. Our monthly newsletter's stock choices generated returns of 197.2% between March 2017 and February 26, 2021, compared to 72.4% for the SPY. Our stock recommendations above the market gained more than 124 percentage points.
Additionally, we could foresee a small number of hedge fund positions that markedly underperformed the market. Since February 2017, we have tracked and shared the list of these stocks; as of November 16, they had lost 13%. We think investors should pay attention to hedge fund sentiment since it is a valuable signal.
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