10 December 2021


L’Oréal is a European beauty conglomerate that owns some of the best known beauty brands in the world (e.g. Lancome, Garnier, La Roche-Posay).

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The business is split into four operating segments: Consumer Products, L’Oréal Luxe, Professional Products, and Active Cosmetics. Consumer Products and L’Oréal Luxe accounted for 78% of FY2020 sales. L’Oréal’s largest geographies are China and the United States.

At a group level L’Oréal has maintained strong organic growth in recent years with consistent value accretive M&A.  L’Oréal have a 5YR CAGR of 6%, taking into account negative growth in 2020, meanwhile APAC alone has a 13% 5YR CAGR.

L’Oréal has invested strongly in its digital platform and so were well placed to benefit from the rapid increase in e-commerce during the COVID-19 pandemic; growing 62% year on year. Pre-COVID, e-commerce grew 52% in 2019 and 41% in 2018. Growth in L’Oréal’s e-commerce still has plenty of runway though; e-commerce accounted for 50% of Chinese sales and only 25% of total sales.

On valuation, L’Oréal looks very expensive on a 42x P/E multiple, well above its 5 year average of 31x. Perhaps it makes sense for L’Oréal to trade on luxury premiums given its luxury brand dominance but this may prevent investors piling into the stock. 

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