Is It Too Late To Buy The Estée Lauder Companies Inc. (NYSE:EL) At Its March Price?

The Estée Lauder Companies Inc. (NYSE:EL) is considered a high growth stock. However its last closing price of $159.98 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing EL’s expected growth over the next few years.

View our latest analysis for Estée Lauder Companies

What can we expect from Estée Lauder Companies in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for Estée Lauder Companies. The consensus forecast from 27 analysts is bullish with earnings per share estimated to rise from today’s level of $4.453 to $6.352 over the next three years. This indicates an estimated earnings growth rate of 10% per year, on average, which indicates a solid future in the near term.

Is EL’s share price justifiable by its earnings growth?

EL is trading at quite a high price-to-earnings (PE) ratio of 35.93x. This tells us that Estée Lauder Companies is overvalued compared to the US market average ratio of 17.17x , and overvalued based on current earnings compared to the Personal Products industry average of 23.81x .

NYSE:EL Price Estimation Relative to Market, March 26th 2019
NYSE:EL Price Estimation Relative to Market, March 26th 2019

We already know that EL appears to be overvalued when compared to its industry average. However, to be able to properly assess the value of a high-growth stock such as Estée Lauder Companies, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 35.93x and expected year-on-year earnings growth of 10% give Estée Lauder Companies a quite high PEG ratio of 3.55x. So, when we include the growth factor in our analysis, Estée Lauder Companies appears overvalued , based on fundamental analysis.

What this means for you:

EL’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are EL’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has EL been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of EL’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.