💄A thing of beauty is a stock forever
Two hottest beauty brands to invest this quarter
Must you care that the beauty industry tried everything in 2020 to lure customers — from virtual “try-ons” to “waterless” beauty products?
Or that Priyanka Chopra claimed she put more make-up on her face during the pandemic than before, owing to her constant virtual conferences?
Well, you mustn’t care unless you wish to invest in some of the beauty industry’s trendiest stocks. However, before we get there, let us give you a sneak-peek into the beauty industry valuations.
Has the industry woken up from its beauty sleep?
Allied Market Research’s recent report said that the global cosmetics industry generated $380.2 billion in 2019. The forecast says it may reach $463.5 billion by 2027, witnessing a CAGR of 5.3% from 2021 to 2027.
As more and more countries prioritise vaccinating at least 50% of their population for reaching herd immunity, the bleaker days of pandemic may already be over. Google (GOOGL) is set to open offices from July 2021 while JP Morgan is calling out 50% capacity in offices soon. As bigger companies lead the way in reopening workplaces, the demand for cosmetics is bound to increase.
And no, the beauty industry is not in denial. The beauty market has had its fair share of shocks due to Covid-19 with store closures across the globe. However, McKinsey, in an interesting research, pointed out that despite the 20–30% decline in the beauty industry revenue, online beauty product sales increased by 20%. Alibaba reported a 150% increase in revenue in China during February 2020 in eye-cosmetics (owing to compulsory mask-wearing rule).
Fun fact: The United States has been reporting a rush in the sales of DIY and self-care beauty products such as skin and hair care, men’s grooming products, body washes and lotions.
In-store beauty products: Pretty much?
The concept of ‘revenge shopping’ is real. There’s a good chance that as more countries become mask-free, buyers will rush into beauty stores too to make up (pun intended) for the pandemic period. Beauty brands have begun to delight customers online through direct-to-customers deliveries and to accelerate innovations to cater to the new post-pandemic world.
The two most “Legally Blonde” beauty stocks are:
- COTY Inc. (COTY)
- Inter Parfums (IPAR)
#1 COTY Inc.
COTY Inc (COTY), owner of stellar beauty brands such as Gucci, Burberry and Marc Jacobs, has shown growth amid bleak pandemic lull. Despite a 3% decline in the revenues in the third quarter of 2020, Coty Inc has continued its progress on profitability over the combined first two quarters of 2021 with an adjusted EBITDA* of $183.2 million with a 17.8% margin. This was up over $180 million versus last year, and a reported operating loss of $1.4 million. This is an improvement of nearly $300 million compared to last year.
Should you invest in COTY?
CEO Sue Nabi revealed in a recent report about his turn-around plan for Coty Inc Some vital highlights of this plan -
# Skincare and China market
By 2025, Coty Inc is targeting -
- Prestige cosmetics to increase from approximately 3% to a high-single digit percent of the revenue mix (as demonstrated from the success of Gucci beauty: 110% growth in the U.S. and 50% in Asia Pacific in the last nine months)
- Skincare to grow from approximately 6% to over 10% of the revenue mix
- China’s contribution to triple to over 10% of the revenue mix
# Leveraging on luxury e-commerce
After revamping its digital strategy, the company has recorded 40% ecommerce sales growth in 2021 driven by its Prestige and Mass businesses. The company is now eyeing industry leading innovations such as social commerce and social listening.
# Comprehensive skincare portfolio
COTY is positioning for greater success through its skincare portfolio across Mass and Prestige. Its fourth skincare brand SKIMS by Kim is launching in the Fiscal Year 2022. UV protection brand Lancaster is positioned to lead in skincare enhancement while facial cleanser brand Philosophy is now being transformed as a green, clean “ceutical” skin care brand.
Before the pandemic, COTY was trading between $14 and $15 and had plunged to $4 during the pandemic period. However, the stock’s now on its comeback run with trading around $8.
COTY is a favourite stock with Vanilla and Value Stocks.
Exhibit 1: COTY comparison with other top beauty stock IPAR and the S&P500s
Data As of June 3 2021. Source: Yahoo Finance
Exhibit 2: COTY stock data points
Data as of June 3 2021. Source: Finviz
#2 Inter Parfums Inc.
The fragrance of Inter Parfums (IPAR) did fade for a little while during 2020 but it has made a come-back with $700 million in net sales in 2021 (as against $539 million in 2020). In the first quarter of 2021, Inter Parfums recorded Net Sales of $198.5 million which is $54 million up from the 2020. Its EBITDA was $50.5 million with a margin of 25.4%.
Is Inter Parfums is a strong buy?
Interparfums has clear plans going ahead. Some highlights-
- Generate 10+% internal revenue growth
- EPS growth of 12–15%
- Future acquisition
Inter Parfums was priced between $76 and $ 77.2 during the first week of June 2021. The earnings estimate of $1.72 per share for the full year shows a change of +42.15% from the year-ago number, making it a Zacks Rank # 1 (as per Yahoo Finance rankings) strong buy. Given the earnings estimates of the company, this stock may be a solid addition to your portfolio.
Exhibit 3: IPAR stock data points
Data as of June 3 2021. Source: FinViz.
Beautiful, aren’t they?