The pandemic has flipped the script of several aspects of our lives, and the cosmetic industry is no exception. An array of new beauty trends have emerged in the past year, which have compelled cosmetics businesses to reevaluate their strategies. Moreover, beauty stocks represented by the Consumer Staples Select Sector ETF (NYSEARCA:XLP) have trailed the S&P 500’s returns in the past year. However, with the re-opening of the economy and businesses getting a better grip on the emerging cosmetics trends, beauty stocks should bounce back.
According to National Purchase Diary (NPD), the first half of 2020 saw a steep decline in sales of makeup products due to facemasks. Moreover, consumers shunned chemical-induced products in favor of natural and organic products for their skins. Additionally, there was a marked increase in e-commerce sales of cosmetic products.
These are only some of the trends that we have been witnessed during the pandemic. The top-performing companies in the sector have adapted well to these changes and are ready to make their mark again. Let’s look at three companies that have the edge over their competition:
Best Beauty Stocks to Buy: Estée Lauder (EL)
Estée Lauder is one of the world’s largest marketers of skincare, makeup, fragrance and hair care brands. It operates over 25 iconic brands in its portfolio, which include Estée Lauder and Clinique. Moreover, it is the third-largest player in the beauty industry behind industry stalwarts L’Oréal (OTCMKTS:LRLCY) and Unilever (NYSE:UL). Naturally, its revenues took a hit during the pandemic, but based on its latest results, its earnings are back on track. As a result, EL stock has been building a decent head of steam in the past 6 months, generating over 40% returns in the period.
It recently released its third-quarter results, which came in much better than expected. Constant currency sales improved by 13% on a year-over-year basis and ahead of management estimates. Moreover, earnings-per-share were 20% ahead of consensus expectation, while adjusted operating income came in at 20.5% above 2019 levels.
The company has benefited from the positive channel and product mix. Moreover, its financial positioning has improved substantially with its year-over-year operating cash flow growth at over 15%. Estée Lauder is investing heavily in China and other emerging markets to increase its business exposure. Therefore, the company has a massive growth runway ahead, pushing EL stock to new heights.
Ulta Beauty (ULTA)
Ulta Beauty is the largest beauty retailer operating in the United States. In the past 5 years, its store count has increased by 43% to 1,254 outlets. Moreover, its revenues have grown exponentially from $3.9 billion to $7.3 billion.
It offers products from over 600 brands with an unmatched loyalty program with a well-integrated omnichannel. During the height of the pandemic, its revenue growth dropped by double-digit percentages. However, since then, it has been on fire, and so has ULTA stock, posting a 12-month return of over 70%.
The company shocked investors with its blow-out first-quarter results. It posted revenues of $1.9 billion, which represented a 65.9% growth on a year-over-year basis. Moreover, its EPS of over $4 comfortably surpassed estimates. With a surge in customer traffic, ULTA’s management has raised its full-year outlook for the year.
Moreover, it has also partnered with Target (NYSE:TGT) to launch over 100 Ulta stores in Target locations this fall. Therefore, with its strong margins and healthy customer traffic, you should expect ULTA stock to take to the skies.
Best Beauty Stocks to Buy: e.l.f. Beauty (ELF)
e.l.f. Beauty provides skincare and cosmetic products under its highly reputable brands such as W3LL PEOPLE and Keys Soulcare. The company has boasted incredible margins and revenue growth in spite of the pandemics’ crippling effects on consumer activity. Moreover, it has bolstered excitement in its drugstore makeup and has branched out effectively in the skincare realm. It has maintained its good form this year, posting double-digit revenue growth in its most recent quarter. ELF stock has boasted healthy returns of over 50% in the past 12-months.
It recently posted its fourth-quarter results, where revenues shot up to $92.7 million, boasting a 24% from the prior-year period. Gross margins were at an attractive 63%, while its non-GAAP EPS of 16 cents surpassed expectations by seven cents. The retailer expects revenues to come in slightly higher ahead of its consensus estimates for this year. The acquisition of W3ll People should positively impact its top-line growth with a stronger e-commerce presence.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
