Celebrity beauty brand stocks can be exceptionally exciting prospects when first looking at them. After all, they have the endorsement of celebrities to build advertising off of, which tends to get people in the door early on. However, these trends fade as first consumers recognize the overpriced nature of products that perform relatively the same as non-branded ones.
This then leads these celebrity beauty brand stocks to dip in value, causing severe losses for investors who bought into the initial hype. Moreover, these brands tend to lack the longevity necessary to offer long-term returns. Rather, these companies are often purchased by larger conglomerates after their value fades and treated as another portfolio asset.
This is due to the fact that most celebrity beauty products are only worth the name of their endorsement. Their chemistry and products often tend to be similar to legacy or drugstore brands, just with flashier marketing. Thus, it is imperative for investors to carefully avoid the following stocks as their value shrinks due to dipping revenues from consumer wariness.
COTY (COTY)
Having lost nearly 20% of its value over the last six months COTY (NYSE:COTY) is feeling the effects of consumer awareness regarding celebrity brands. The company had previously acquired Kylie Jenner’s beauty brand, Kylie Cosmetics, in an attempt to bolster its portfolio with her strong follower base.
This, however, has not had much impact on the company’s net income bleed. For example, as of its Q1 earnings report for the year, the company lost over 96% of its income, reducing profit margins down to 0.27.
This is concerning for investors in the company because it signals difficulty generating profit even a revenue bump. Should consumer trends continue to avoid COTY’s brands, this issue could become even more severe.
elf Beauty (ELF)
While not directly endorsed or founded by any major celebrities, elf Beauty (NYSE:ELF) could be on the verge of a correction. The company’s products are undoubtedly of higher quality than the average competitor in the market, but its current price-to-earnings ratio of 96.88x is concerning in comparison to the broader industry.
This overweight appearance comes amid a 47.87% decrease in profit margins which could spell future troubles for the company despite its strong revenues. What’s more, the company has done little to expand its brand image beyond the boutique appearance it currently commands.
Thus, without broadening its market and managing its income more effectively, the company could see its share value drop after the earnings report should these trends continue. If the company can broaden its market exposure and begin to compete with the cosmetics giants of the beauty industry, then it may be able to regain trust in its current share valuation of around $200.
Cutera (CUTR)
Endorsed by the broader Hollywood industry, Cutera (NASDAQ:CUTR) and its novel body-shaping techniques have become something of a penny stock in comparison to its trading price a few years ago. Now several hedge funds are shorting 38.47% of its total shares. Some meme investors may expect this to result in a short squeeze they can profit from. However, the reality is that the company is simply losing too much revenue to stay valuable.
Moreover, the company itself projected $160 million to $170 million in sales for 2024 and a lower-than-expected $55 million to $60 million in cash by the end of the year. Pair this with a 29% decrease YOY for its Q1 revenue and Cutera becomes a stock to stay away from.
While its technologies may be exciting and endorsed by Hollywood, investors should also remember that its market is relatively small. After all, the average American cannot afford the pricey machines it sells or even the treatments its practitioners offer.
On the date of publication, Viktor Zarev 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.
