According to Yahoo Finance, a company's underlying fundamental trends can indicate a decline in its performance. One such indicator is a declining return on capital employed (ROCE), which measures how much pre-tax income a company earns on the capital invested in its business. Estée Lauder Companies (NYSE:EL) has a current ROCE of 10%, which is relatively normal for the Personal Products industry, averaging around 11%. However, a declining ROCE, especially in conjunction with a declining base of capital employed, can signal a mature business in decline.
Despite having a relatively normal ROCE, Estée Lauder Companies' stock has declined by 54% over the past five years. This decline in stock value, coupled with underlying trends that are not ideal, raises concerns about the company's long-term prospects. Investors have likely taken notice... as the stock's performance has been underwhelming.
While a declining ROCE may not necessarily indicate a growth stock, it does suggest that the company is not generating the same level of returns on its investments as it once did. Further analysis, "including examining analysts' predictions and warning signs.".. is warranted to determine the company's future prospects.
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What underlying fundamental trends can indicate that a company might be in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. Having said that, after a brief look, Estée Lauder Companies ( NYSE:EL ) we aren't filled with optimism, but let's investigate further.
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Estée Lauder Companies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Thus, Estée Lauder Companies has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 11% generated by the Personal Products industry.
In the above chart we have measured Estée Lauder Companies' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Estée Lauder Companies .
In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors haven't taken kindly to these developments, since the stock has declined 54% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
On a final note, we've found 2 warning signs for Estée Lauder Companies that we think you should be aware of.
Estée Lauder Companies is a multinational cosmetics and skincare company. Founded by Joseph L. Lauder in 1946, the company has grown to become one of the largest beauty companies in the world. Estée Lauder is known for its premium skincare and beauty products, including Clinique, MAC Cosmetics, and LA Mer. Under the leadership of Estée Lauder, the company has expanded globally and diversified its product offerings.
Estée Lauder's success has been recognized with numerous awards and accolades, including being named one of the "World's Most Admired Companies" by Fortune magazine. The company has also been recognized for its commitment to sustainability and social responsibility... with initiatives such as reducing greenhouse gas emissions and promoting diversity and inclusion.
Estée Lauder's Stock Has Declined Significantly Over The Past Five Years:
Stock declined 54% in 5 years.
Estée Lauder's stock has declined significantly over the past five years, falling by 54% from its peak. This decline is a cause for concern, as it suggests that investors have lost confidence in the company's ability to drive growth and returns. There could be several reasons for this decline, including: * Disappointing earnings growth: Estée Lauder's earnings have not kept pace with the broader market, leading to a decline in investor confidence.
* Increased competition: The beauty and personal care industry is highly competitive, and Estée Lauder may be struggling to keep up with changing consumer preferences and trends.
* Shifts in consumer behavior: The COVID-19 pandemic has led to changes in consumer behavior... including a shift towards online shopping and a greater focus on sustainability.
Estée Lauder may need to adapt to these changes in order to remain competitive.
* Economic uncertainty: The economic downturn and ongoing global uncertainty may have contributed to a decline in consumer spending on luxury goods, "including beauty and personal care products." Despite the 54% decline in stock price, Estée Lauder still has a strong brand portfolio and a solid financial position.
The company's revenue has remained relatively stable... and it has a significant cash reserve to weather any further economic downturns.
