L'Oreal, the leader of Beauty

Is the Cosmetics Giant worth its price?

As its stock has reached its all time high in 2024, L’Oreal’s PE 38x and is expected to be around 35x in 2024. But, what can justify such a high valuation? Is it sustainable? Let’s discover the world of the famous leader of cosmetics.

Company presentation

The company owns a great variety of brands. It is divided into 4 business units:

• L’Oreal Professional Products, for B2B activities (especially hairdressers)

• L’Oreal Consumer Products, where you can find products sold in supermarkets

• L’Oreal Luxe, with fragrance, make-up and skincare sold mostly by specialized retailers like Ulta Beauty or Sephora

• L’Oreal Dermatological Beauty, for products sold in pharmacies

Source: L’Oreal Investor Presentation

The history of L’Oreal has been marked by numerous acquisitions. Since 2017, the amount of acquisition has gone from around 100M€ to around 1,000M€, a 10 times increase.

Source: L’Oreal Investor Presentation

Innovation is key in the culture of the company. Based on 2022 data, around 3% of the sales are dedicated to R&D. They employ 1,000 researchers and own more than 500 patents. They also invest in technologies with almost the same effort, mainly to enhance the consumer journey - and therefore develop sales and brand image.

The cosmetics market

The cosmetics market size is about $398B worldwide in 2023 and should be around $586B by 2030. This represents an annual growth of 5.7%.

Two of the main growth factors are the emergence of the middle class in a lot of markets (we think to the SAPMENA region - for South Asia Pacific, Middle East, North Africa) and the will to increase the quality of the cosmetics used (for mature countries such as Europe, Japan and North America).

Several subsegment may grow faster, such as msen’s cosmetics that is expected to grow at a rate of 9.3% per year by 2030.

Established industry leaders such as L'Oréal, Estée Lauder, and Procter & Gamble compete with a myriad of niche players, each carving out its unique niche in the market. The rise of direct-to-consumer models and the increasing influence of social media have transformed the landscape, allowing agile newcomers to challenge traditional norms. Therefore, technology and innovation are the two main weapons for L’Oreal to resist and maintain its domination on the sector.