The beauty industry has changed considerably during the past several decades. E-commerce sales, vast ranges of high-quality and inexpensive products, and an Instagram-inspired emphasis on beauty in 2022 have made acquiring beauty products and beauty stocks more enjoyable. In addition to retail products, the beauty industry includes the services of hairdressers, make-up artists, barbers, cosmetologists, etc.
What Are Make-up Stocks?
Make-up stocks are securities issued by cosmetics and consumer beauty companies that manufacture cosmetics, perfume, skincare products, hair care products, and toiletries.
Because a parent corporation owns the majority of drugstore brands, investing in makeup stocks can be tricky. In actuality, only eight businesses control approximately two hundred cosmetics brands.
Such as Aveda, Clinique, and M.A.C. These are Estée Lauder's. And Maybelline and Lancôme? These belong to L'Oréal.
There are some cosmetics stocks listed on U.S. markets. However, investors in this subsector of the consumer staples industry should also be prepared to invest in multinational brands, such as the Japanese personal care business Kosé and the German skincare brand Biofrontier.
What You Must Know About The Beauty And Cosmetics Industry
Companies that market cosmetics, toiletries, hair products, perfumes, and even feminine hygiene items are considered cosmetics stocks. Globally, this industry is projected to be valued at about $500 billion.
The great majority of brands in cosmetics are owned by a small number of "parent firms." These include The Estée Lauder Companies, L'Oréal and Coty.
In 2020 and 2021, the performance of some cosmetics stocks was strong, while the epidemic badly impacted the performance of others. The so-called "lipstick index" is the conventional benchmark for valuing cosmetics stocks. Consumers will "reward" themselves with smaller luxuries like these while cutting back on larger ones like holidays, suggesting that lipstick and other small luxury items will do well in a down economy. Lipstick sales dropped as people switched to using cloth and surgical masks during the outbreak, but eye and skincare cosmetics sales skyrocketed.
Why Are Make-up Stocks booming?
Simply put, millennials. Apparently, the practice of following, liking, and sharing make-up tutorials and reviews on Instagram and Twitter enables newer, less-known brands to compete with the industry's established leaders.
A number of cosmetics stocks fared well in 2020 and 2021, while the pandemic severely hit others. The "lipstick index" is the industry standard for valuing cosmetics company stocks. Lipstick and other little luxury items will likely do well in a recession because consumers may "reward" themselves with them while reducing spending on larger pleasures like vacations. As many resorted to utilizing cloth and surgical masks during the outbreak, lipstick sales plummeted, while eye and skincare cosmetics sales soared.
As a result, prominent beauty stocks posted double-digit returns in 2019. And at least one investment bank predicts that this trend will continue. As a result, beauty and luxury stocks will increase as the world prepares to "go out" following the easing of pandemic restrictions.
Surprisingly, whether or not there is a pandemic, cosmetic products remain vital to the average customer.
While certain cosmetics companies have profited more than others as a result of Covid-19, investors willing to take a chance on the self-improvement and wellness movement have the potential to earn exceptional returns.
This is likely to be the case even more so now that the Covid-19 vaccine has been distributed worldwide and society and industry have become more open.
The beauty industry offers great profit potential, as it is a necessity for many individuals. While the beauty industry suffered during the pandemic, it appears to be on the mend, especially with the return of public events. Influencers and social media may potentially propel the cosmetics industry back onto a solid path to recovery.
Estée Lauder (EL)
Estée Lauder is one of the largest marketers of makeup care, cosmetics, fragrances, and hair care products in the world. It operates over twenty-five prominent brands, including Estée Lauder and Clinique. Moreover, it is the third-largest beauty industry participant, trailing only L'Oréal (OTCMKTS: LRLCY) and Unilever (NYSE: U.L.). Evidently, its income took a hit during the pandemic but based on the company's most recent financial statistics, its profits are back on pace. Consequently, E.L. stock has been gaining momentum over the previous six months, earning returns of over 40% throughout the period.
Recent results for the third quarter were far better than anticipated. Sales in constant currency increased by 13% year-over-year, exceeding management's expectations. In addition, earnings per share were 20% over the consensus estimate, and adjusted operating income was 20.5% above 2019 levels.
The company has profited from the favorable product and channel mix. In addition, its financial position has improved significantly, as its operating cash flow has increased by more than 15% annually. Estée Lauder is spending extensively on China and other emerging economies to expand its business reach. Consequently, the company has a vast growth runway in front of it, propelling E.L. stock to new heights.
Nu Skin Enterprises, Inc. (N.U.S.)
N.U.S., headquartered in Provo, Utah, produces and distributes personal care and wellness products worldwide. The company is engaged in researching and producing nutritional supplements and skin care products. It markets and sells its products directly, as well as via distributors and websites.
Mavely is client acquisition and social selling platform, and N.U.S. purchased it on November 10, 2021. As a result of this deal, N.U.S.'s brand partners will presumably have better access to social selling tools. Mavely's unique technology will help the N.U.S. improve its shoppers' experiences and enter new international social commerce markets.
N.U.S. had $282.41M in liquid assets as of September 30, 2021. Earnings per share are predicted to reach $3.97 in fiscal 2021, up 9.4 percent from the previous year. N.U.S. has outperformed EPS forecasts in each of the last four quarters. The current year is expected to bring in an average of $2.68 billion, up 3.8% from 2017. Over the next five years, analysts forecast that the company's earnings per share will grow by an average of 6.8 percent annually. Over the previous three months, the stock price has risen by 29.7 percent, closing yesterday at $53.29.
Sally Beauty Holdings, Inc. (NYSE: S.B.H.)
Sally Beauty Holdings, Inc., headquartered in Denton, Texas, is an American international specialty retailer and distributor of professional beauty supplies.
The businesses of Sally Beauty Supply and Beauty Systems Group sell and distribute items to over 4,000 retail locations.
Currently, there are over 200 franchises across North America, Canada, the United Kingdom, Europe, and various Latin American nations.
In addition to a large range of professional labels, such as Clairol, L'Oréal, Wella, and Conair, Sally Beauty Supply locations provide an extensive selection of their own products.
Beauty Systems Group stores, sometimes CosmoProf or Armstrong McCall outlets, and its outside sales consultants sell up to 9,800 professionally-branded items.
Paul Mitchell, Wella, Sebastian, Goldwell, and TIGI are among the brands supplied solely for professional and salon use.
In addition, the company also offers an extensive selection of products for African-American women.
S.B.H.'s profitability for the first quarter of 2022 exceeded expectations, with e-commerce sales rising 22% year over year and overall gross profit up 6.2%.
In the early months of 2022, the business will provide a bigger product selection and D.I.Y. hair instruction seminars.
Ulta Beauty (ULTA)
ULTA carries the Ulta Beauty storefront sign in Laurel Town Centre in Laurel, Maryland.
Ulta Beauty is the largest beauty supply store in the United States. Over the previous five years, it has increased its number of stores by 43 percent, to 1,254. Its income has also skyrocketed, from $3.9 billion to $7.4 billion.
Thanks to its seamless integration across all sales channels and its wide selection of products from over 600 companies, it has an unequaled loyalty program. The company's revenue growth slowed by double-digit percentages during the height of the epidemic. However, it has been on fire since then, and ULTA stock has gained over 70% in the past year.
The company's performance in the first quarter shocked investors. An increase of 65.9% year-over-year in revenue was achieved, totaling $1.9 billion. And its nearly $4 earnings per share is far better than forecast. Managers at ULTA have raised their expectations for the year as a whole, thanks to rising foot traffic.
Ulta and Target (NYSE: T.G.T.) will launch more than a hundred stores within Target stores this fall. The ULTA stock price is likely to rise because of the company's healthy profit margins and consistent customer traffic.
e.l.f. Beauty (E.L.F.)
Brands like W3LL PEOPLE and Keys Soulcare are just a few that E.l.f. Beauty carries in its selection of skincare and cosmetics. The company has accomplished remarkable profit margins and revenue growth despite the pandemics' crippling effects on customer behavior. It has also successfully expanded into the skincare business and seen a rise in demand for its inexpensive makeup. This year, the company has continued to operate well, with recent quarterly revenue growth in the double digits. Stock in E.L.F. has risen by nearly 50% in the past year.
They just released their quarterly results, and revenue climbed by 24% year over year to $92.7 million. Non-GAAP EPS of 16 cents was seven cents more than expected, and gross margins were a staggering 63%. The shop expects somewhat better than predicted sales for the current fiscal year, and the addition of the W3ll People customer base is anticipated to contribute positively to revenue expansion.
At the time of publication, Muslim Farooque held no positions (directly or indirectly) in the securities discussed in this article. These thoughts are those of the author and are subject to the InvestorPlace.com Publishing Guidelines.
Unilever
Even though it is traded on the London Stock Exchange (L.S.E.), Unilever is not necessarily the first cosmetics firm that springs to mind. However, in 2017, it formed Unilever Cosmetics International, where it stores several of its beauty products, like Tom Ford perfumes and Calvin Klein cosmetics and perfumes.
The high-end cosmetics lines Dermologica, Living Proof, and Kate Somerville are all owned by the Prestige Group, a division of Unilever. In addition to its household names like Dove, Axe, and Brut, the industry is also a powerhouse in the perfume market.
Interestingly, the Prestige Group showed strong sales as the self-care movement swept the globe in the first quarter of 2021 when the company's beauty products category grew by 2.3%. Sales at Unilever have surpassed projections made before the epidemic by the first week of February 2021, well before the end of the first quarter of that year.
Unilever has also stated that it intends to enhance future revenues by investing over €1 billion in various tactics, such as expanding its cruelty-free, plant-based beauty goods, which are extremely on-trend.
Kao Corporation
The Japanese corporation Kao Corporation is one of the world's largest beauty and cosmetics companies, owning well-known brands such as Kanebo, Bioré, John Frieda, Molton Brown, and others. Similar to Unilever, the company is renowned for its aggressive purchase of cosmetics companies. However, Kao is even more historic, with origins dating back to 1887.
With a market capitalization of over 29 billion, Kao dwarfs even Unilever. This did not prevent the company from having a difficult 2020, as the cosmetics division's revenue decreased by nearly 22% compared to the fiscal year 2019. (FY2019). The firm also has a substantial Kao Salons division, which suffered from the year's quarantines. However, its performance was bolstered by Kao's numerous other businesses, particularly those providing hand sanitizers and household cleaning products.
Despite projected losses in 2020, Kao Corporation has stated that it will make considerable investments in its cosmetics sector, including a complete overhaul of its "digital offering." This is to make a compelling new e-commerce functionality available, a move that the online purchasing community will enthusiastically receive.
Kao's often-pioneering social conscience bodes well for the company, as seen by its ambition to achieve zero carbon dioxide (CO2) emissions by 2040 and its status as one of the world's most ethical corporations for the fifteenth consecutive year.
According to research, this is crucial for the extremely influential consumers of Generation Z, a fact from which Kao appears to benefit.
Shiseido (SSDOY)
Shiseido is the oldest and largest cosmetic firm in the world and the largest Japanese manufacturer of cosmetics and beauty goods. The group consists of 26 brands that are segmented into business sectors, including prestige, fragrance, cosmetic, personal care, and professional care. In addition to the Shiseido-branded items, the corporation also owns subsidiary brands.
Coty Inc.
Coty Inc., an American fragrance, hair, and cosmetics company, owns numerous brands, including Kylie Cosmetics, Rimmel, Wella, CoverGirl, Clairol, Max Factor, and others.
Recent Coty data indicate a disruption from Covid-19, as the frequency of self-isolation has led to a decline in the usage of cosmetics and scents. The company's most recent financial figures reveal a 3.3% decline in total revenue and a 14.3% drop in net sales. However, the company's e-commerce business and Asia sales increased by over 30%, and revenue from prestige brands increased by 6.5%.3
This was owing in part to the company's license for Burberry fragrances and cosmetics. The company's beauty sales under the category 'children's, beauty and other' increased from £127 million in 2019 to £144 million in 2020, according to the company's Q1 statistics for 2021.
Coty has also projected that it will conclude the summer with net revenues between $4.5 billion and $4.6 billion, including preparations for a high-profile relaunch of Kylie Cosmetics.
Interparfums
Interparfums makes and sells high-end perfumes and cosmetics for brands such as Coach, Moncler, and Oscar de la Renta, concentrating largely on fragrances. During the peak of the pandemic in 2020, the fragrance company failed, but Interparfums is currently operating at a higher rate than before the pandemic. Like many of its cosmetics industry rivals, its business has recovered.
Sales climbed by 25% to $207,600,000 in the second quarter, while operating income doubled to $44,700,000. The company has lately signed a 10-year contract to create perfumes under the Ferragamo brand, and it continues to introduce new products, demonstrating its innovative nature and generating extra growth.
Interparfums' specialty in one of the smallest sub-sectors of the cosmetics industry distinguishes it from other cosmetics companies, and its roster of respected brand partners gives it a competitive edge.
Investment Risks in Make-up Stocks
Even the consumer staples industry is susceptible to market volatility. The development of e-commerce and the presence of social media have begun to convert in-person window shoppers into online buyers. In response, the cosmetics industry is adapting.
Smaller, independent brands, such as e.l.f. and Ulta, pose a growing threat to legacy brands such as L'Oréal and Estée Lauder. With the rise of online purchasing, older firms that relied on personal sales representatives or makeup artists to close the deal are struggling to maintain their footing.
Before investing, you should investigate the past performance of the makeup stock you're considering. Is it an ascending trend? On a plateau? Falling behind? Newer brands are riskier, yet they may have greater adaptability than established brands.
Conclusion
During the pandemic, some stocks in the beauty industry, particularly makeup brands and salons, have suffered. Others, such as self-care stocks, premium skincare, and hair care, have thrived in the stay-at-home atmosphere. During economic downturns, cosmetics stocks could provide portfolio diversification. However, no industry or investment is risk-free, and rising buying habits may stimulate industry competitiveness.
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