Company Operates in the Cosmetics

¶ … company operates in the cosmetics industry. In this section I would like to know, when discussing that the industry leader is P&G, how big Estee Lauder is and where it fits in terms of revenues and market share. If it has any other brands in its portfolio, I would like to know that too. The recommendation is a "buy" on Estee Lauder. The partner's investment criteria are given as improving financial ratios, speculation about future ventures, and how well the current strategy is working.

The rationale for these factors is not given. It should be -- speculation about future strategic direction is nothing more than guesswork and probably should not be taken into account. A very good reason is needed to justify that criterion. 'How well the current strategy is working' can be gleaned from the financial statements, so that third criterion is redundant. Some of the more logical criteria, like the current stock price (and whether the company is under or overvalued) are not included.

I'm thinking the Gordon growth model, discounted cash flows -- there are ways to determine if the stock is over- or under-valued. Just because it is a good company does not mean that it is a good investment. This company has a P/E of nearly 30. That is a lot for a mature company, so I want to know if EL is overvalued or not. 4. No specific financial criteria are given other than "improving ratios." Perhaps stronger criteria might be required.

Non-financial criteria are reasonable, but will need to be explained carefully later in the paper. I definitely want to know more about the quantitative analysis, and what the author's views are on the current valuation as that should play a role in a stock recommendation. The overview section includes all elements, but some are poorly explained, especially with respect to how they contribute to the investment recommendation. There is conflicting information -- early EL products were described as commodity goods, now they are luxury goods.

Which is it? EL is described as having a narrow target market -- this is wrong. Their revenues last year were $8.8 billion -- not exactly a niche market. Sentences like "In terms of competences, Estee Lauder has proprietary know how and has learned a lot over the years" are meaningless. What knowledge drives competitive advantage should be outlined specifically. The CSR section tells me nothing about how any of that its into strategy. The clause "an independent 501 (c) (3) charity" is an example of filler that should be removed.

Recent news should relate to finance and strategy, not personal interest. The assessment of the mission statement is not critical. Basically, the section is thin and needs to be more focused on how each element contributes to the investment decision. Also, I cannot identify three outside sources. Please use in-text citations. 5. The partner chose net profit margin, ROE, ROA and EPS. The relevance of these numbers to the investor was explained.

This section could be improved with the use of more specific operating ratios that tell me something about the company's internal performance. All four ratios use net income in their calculation -- this section needs to see some independence to give more insight. Liquidity, solvency, and operating efficiency ratios should be substituted for three of the chosen ratios to give this section the balance needed to truly be informative. Lastly, there is no discussion of the income statement or balance sheet in this section. 6.

The recommendation is clear but the justification does not make much sense. The ratios all move in the same direction because they are all based on net income -- other ratios are required for a proper financial analysis. If EL stock does not promise a good return, why am I investing? I have limited money and there are thousands of good companies -- why is this one better? EL is not an emerging company by any definition; it is not a growth story.

The justification section really needs work -- if the stock is up 43% in the last year, what does that say about the current valuation? It most certainly does not say "buy now." I want to make a return on my investment, so I want to buy low and sell high; not buy high and sell low. When a company is trading just below its all-time high, it is important that the justification for future stock price growth by rock solid.

Thus, the recommendation should clearly flow from all of the factors previously discussed, not a skin-deep assessment that the company is generally good. Specific numbers should be used in the recommendation. 7. There are no charts and graphs. They are not necessarily needed, so I don't see this as a problem. 8. Citations are not used in this analysis. This makes fact-checking difficult. Please use.