Is Estée Lauder Stock a Deep Value Buy?

Many stocks have been struggling this year amid challenging economic conditions and a worrisome outlook ahead. For opportunistic investors, it can be a chance to buy stocks at some incredibly discounted prices -- but there's often significant risk that comes with doing so.

Estée Lauder Companies (NYSE: EL) is an example of a business that hasn't been doing well, and that may face considerable challenges ahead. Its shares have been under pressure for some time, and the stock may be on the radar of bargain-hunting investors.

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Could this be a deep value buy right now, or is Estée Lauder stock simply too risky an investment to be holding in your portfolio?

The stock has been in a free fall

One of the intriguing reasons investors might be tempted to take a chance on Estée Lauder's stock is its beaten-down valuation. Over the past 12 months, shares of the cosmetics company have plunged by 57%. The last time the stock was around its current levels was back in 2014. For investors, this could seem like a compelling contrarian buy. If Estée Lauder is successful in turning around its business, it may generate significant returns -- potentially doubling or tripling in value.

The consumer goods stock looks cheap with respect to revenue, as it's trading at a price-to-sales multiple of 1.6. However, when factoring in earnings, it's a bit of a different story. Its forward price-to-earnings multiple, which is based on analyst expectations, is 28. That's certainly not cheap for the stock, but it also reflects a challenging retail environment ahead for the business. Presumably, if economic conditions improve and consumers are in better financial shape, the company may also be expected to perform better. Thus, the outlook for its bottom line would be better.

These multiples will change depending on how well the company is doing, and that's why what matters most are its prospects for the future.

Is Estée Lauder's business in trouble?

Estée Lauder's business hasn't been performing well. Sales are down in multiple segments, and tariffs pose yet another risk to the multinational company's operations. Previously, the company said it may need to cut up to 7,000 jobs amid efforts to restructure its business. It sells products in more than 150 countries, so any tariffs along the way could severely hurt an already weak bottom line.

During the last six months of 2024, the company reported $7.4 billion in sales -- that's a year-over-year decline of 6%. Skin care sales were down by 10%, hair care by 7%, and makeup by 2%. Fragrance sales were flat, and that was the only segment that wasn't in negative territory during that stretch. The company posted an operating loss of $701 million during the past two quarters, but the results would have been much better if not for goodwill impairment (it totaled $861 million) and restructuring charges ($278 million).

The big concern is that Estée Lauder's sales and profits may plummet further due to tariffs and trade wars.

Too risky to take a chance on right now

There's no doubt that Estée Lauder looks like a cheap buy, but the problem is that its valuation can still fall lower. If sales continue to go in the wrong direction and earnings deteriorate as well due to tariffs and slowing demand, there may be little hope in seeing the business do better and for the stock to rally. It could be a challenging year -- perhaps even longer -- ahead for Estée Lauder's business.

The company was already facing difficulties in growing its operations before this latest turmoil involving tariffs, as competition has been intensifying in the industry. Investors may be better off taking a wait-and-see approach with the stock, as there is considerable risk and uncertainty ahead with Estée Lauder.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.