Jan 6, 2024 - Economy

Beauty is in the eye of the market: Why L'Oréal and Estée Lauder stocks diverged

Data: YCharts; Chart: Axios Visuals
Data: YCharts; Chart: Axios Visuals

L'Oréal and Estée Lauder are the two largest beauty companies in the world, boasting a market share of 16.1% and 13.6%, respectively. (LVMH is a distant third with 8%.)

Why it matters: The two stocks moved in perfect lockstep with each other from pre-pandemic to the beginning of 2023 — but since then, they have sharply diverged.

  • L'Oréal is doing so well that Françoise Bettencourt Meyers, the heiress who controls 35% of the company's stock, is now personally worth $100 billion — the first woman ever to achieve that milestone.
  • L'Oréal partners with very successful luxury companies like Yves Saint Laurent and Giorgio Armani; it also owns top beauty companies like Maybelline and Garnier (not to mention the namesake L'Oréal).
  • Most importantly for me, it didn't ruin Kiehl's after buying the cult beauty brand — which at the time had just a single store in New York's East Village — for a reported $100 million in 2000.

The other side: Estée Lauder, on the other hand, has struggled of late. It overpaid for Tom Ford, which it acquired at the end of 2022 at a valuation of $2.8 billion, increasing its own indebtedness by $2 billion in the process.

  • More importantly, the company's business in the Chinese duty-free island of Hainan imploded, and Estée Lauder found itself sitting on large amounts of unsellable inventory.

The bottom line: There wasn't anything particularly predictable about this sudden divergence in fortunes — although any hedge fund manager capable of seeing the relative-value play this time last year surely made a fortune.

  • For the rest of us, this chart simply underscores the importance of diversification.

Editor's note: This piece was corrected to show Tom Ford was acquired at the end of 2022 (not 2002).

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