Is There More Room For Growth In L’Oreal Stock?
After a 29% rise this year, L’Oreal stock (OTCMKTS: LRLCY) looks fully valued. L’Oreal stock has risen from $72 in early January to $92 now. This marks a significant outperformance with the 7% return for the broader S&P500 index. Looking at a slightly longer term, LRLCY stock is up 55% from levels in late 2019. This can be attributed to 1. the company’s P/S ratio, which rose 20% to 6.1x trailing revenues from 5.1x in 2019, 2. a 22% rise in L’Oreal revenue to $92.4 billion, and 3. its average shares outstanding falling 5% to 2.7 billion. Our interactive dashboard, Why L’Oreal Stock Moved, has more details.
L’Oreal is the largest manufacturer of cosmetics in the world. It sells makeup, fragrances, skincare, and hair care products through over 30 global brands. The company’s sales rose 12% to $40.9 billion in 2022, partly due to favorable foreign exchange. The company has also benefited from price increases in the recent past. Now that the lockdowns in China have been lifted, L’Oreal will likely see strong sales growth in the near term.
Not only has the company’s sales risen over the recent years, its operating margin has increased slightly from 18.6% in 2019 to 19.5% in 2022, despite elevated input costs. The company’s bottom line increased 21% y-o-y to $2.41 in 2022, led by higher revenues, margin expansion, and a decline in the number of shares outstanding. Looking at valuation, we think that L’Oreal stock is fully valued. At its current level of $92, LRLCY is trading at 6.1x its trailing twelve months’ revenues, compared to the last four-year average of 5.9x, implying that it is appropriately priced.
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While LRLCY stock looks appropriately priced, it is helpful to see comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for F5 vs. Target.
What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.
| Returns | Apr 2023 MTD [1] |
2023 YTD [1] |
2017-23 Total [2] |
| LRLCY Return | 3% | 29% | 152% |
| S&P 500 Return | 0% | 7% | 83% |
| Trefis Multi-Strategy Portfolio | -3% | 5% | 230% |
[1] Month-to-date and year-to-date as of 4/6/2023
[2] Cumulative total returns since the end of 2016
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