“The fact that people are full of greed, fear or folly is predictable. The sequence is not predictable” – Warren Buffett
It’s well-known that in the short (and sometimes even medium) term, stock market movements are often more influenced by investor sentiment than by the actual performance of companies. But what about beauty stocks? Are they suffering purely from negative market sentiment, or is the beauty industry genuinely in trouble?
Until the first quarter of this year, the beauty companies we track showed only modest performance. In Q2, we saw a divergence: brands like AmorePacific, Beiersdorf, Shiseido, and Puig improved, while others experienced declining results. Yet by now, all these companies have seen their stocks decline, with none trading above their starting point for the year. The drops range from -3.4% for AmorePacific to a steep -54.6% for Estée Lauder.
Despite these market losses, the financial fundamentals tell a different story. By the end of the first half of the year, these beauty companies had a combined revenue increase of +6.2% year-over-year, and net profit growth of +10.5% year-over-year. Preliminary data for the first nine months still point to overall growth and solid business fundamentals.
So, why the disconnect between strong financials and falling stock prices? Likely, it’s a mix of high expectations not being fully met, disproportionate fears around trends in China and luxury (as well as other geopolitical uncertainty), and company-specific challenges.
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