Signs of a great rebirth?

Estée Lauder Companies, Inc. NYSE:EL it’s part of an increasingly small group of titles that have yet to see a serious return to recent sales. After gaining more than 200% from January 2019 to January 2022, investors in the cosmetics giant then learned a hard lesson in gravity.

In November last year, the company lost more than 70% of its value and was likely saved from losing more only by the broader market rally that began in response to likely interest rate cuts. But something interesting has happened in recent months, and it’s not just the solid run of gains, 40% in total from the November low. In reality there has been a seemingly endless series of analyst updates, and it has effectively all been one-way traffic.

Rush of updates

For example, February saw fewer than five bullish upgrades, with Raymond James rating Estée Lauder a Strong Buy while Wells Fargo rated it Overweight. Then in March, Bank of America upgraded Estée Lauder shares from Neutral to Buy, a move echoed by the Citigroup and DA Davidson teams this week.

These analysts’ updated price targets have increased as high as $175, with at least three from the above list calling this their expectation. Looking at the chart, however, you can’t help but get the feeling that the stock hasn’t yet reflected all this bullish optimism.

While they’ve retained much of the gains they made from November’s run, Estée Lauder shares have actually been trading sideways since late December. That’s funny, considering how many analysts have come out on the bullish side in the meantime, which is made even stranger by the broader market setting high after high. To give an example, just this week, the benchmark S&P 500 index recorded a new all-time high.

Reach an inflection point

This week also saw Estée Lauder hit what Citigroup called an “inflection point” in its return to growth after last year’s disastrous sell-off. The company’s sales have been hit hard by the slump in consumer spending in China, a key market, and its stock has risen as a result. But it appears they have managed to adopt sufficiently aggressive tactics to overcome these obstacles, while there are signs of growth returning in its key markets.

Bank of America is optimistic enough about the turnaround to say the company is on the verge of returning to profitability, even “if China only grows in single digits,” while Canaccord summed it up well when it said Estée Lauder can to earn more because he is the one who has suffered the most.

Are you thinking of participating?

That said, it’s easy to think that investors might be looking at a sleeping giant that is starting to awaken. It will take a certain type of investor to be excited about this opportunity, as Estée Lauder has significantly lagged behind its competitors and the broader market.

But perhaps that is where the real opportunity exists. It would be a different story if these analysts’ upgrades hadn’t materialized at the rate they did, or if Estée Lauder shares had hit even lower lows this year. But the fact is that the stock has been gaining ground since last November and signs continue to emerge that the worst is over.

With the 70% sell-off of recent years barely beginning to be absorbed, an exciting recovery plan is gaining momentum. Investors should look for stocks to approach and close above their recent high of $160, as this would provide technical confirmation that the recovery is indeed about to begin in earnest.

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