Summary
- EL has recovered well but faces potential historical underperformance through the next month and a half in a higher volatility situation.
- Sales declines both geographically and across categories, and weakness could persist for Q1.
- EL has pulled back a bit off highs as the market slumped and both could face another round of selloffs in September and October.
Estée Lauder (EL) finally recovered to pre-pandemic valuations and set a new 52-week high to end August, but as the market gains more turbulence, the 'lipstick index' doesn't look all too optimistic through the end of October. While Estée Lauder should find strength through November and the holiday season in e-commerce, it could face some near-term weakness against the market. This article will be followed by a secondary bull case for holiday strengths when the time presents a much more attractive buying opportunity.
Although the past is never truly indicative of future performance, we can still point out some similarities over the years during turbulent market conditions. September already saw the market start off on a rocky note, with the S&P 500 falling over 4% and the NASDAQ over 6% - volatility is still high as the market is fresh off new highs, and other future selloffs could be in store for September and October.
2016 saw a choppy up & down trading in the market through September and early October, while late October saw a string of negative days. Estée Lauder kept pace with the market through September, but slipped the week of October 17 - this period, Estée Lauder performed about on par with the market albeit with some slight underperformance.
2018 had a sharp selloff in October after a smooth September - the market shed around 8% that month. Estée Lauder had turned a +3.8% gap between itself and the market into as wide as a -7% difference during the October selloff, as Estée Lauder plunged almost 8% in one day. While shares picked up to perform with the market during November, the greater magnitude of the selloff in October indicates potential weakness relative to market downturns.
2019 had a rough end to positive September trading which carried over into the first week of October before the market regained its strength. However, Estée Lauder underperformed the market as it started to flatten in mid-September, gained a bit of strength before the selloff, but never found a recovery even as the market turned upwards.
