The desire for picture-perfect skin is creating a boom that investors can ride. Skincare has grown increasingly important to consumers with the rise of social media. Having — and sharing — a “routine” or “regimen” to protect the health of one’s skin has become mainstream. Beauty sales are typically divided into four main categories. Skincare was the only one to post above-average growth on an annualized basis between both 2015-2019 and 2019-2022, per Euromonitor data. It’s expected to grow at an average of 6% each year between 2022 and 2027, in line with the broader industry. Makeup and hair care are projected to show similar annualized growth from 2022-2027, but off a smaller base. Both categories also have had a choppier track record in recent years. Annualized growth in fragrance expected to rise at a more rapid pace of 7%, Euromonitor said. Global skincare is poised to crack the $200 billion mark by 2027, according to Statista . The firm’s forecast amounts to a nearly 29% increase from 2018. ‘Gorilla grip-like’ stickiness Analysts posit that consumers tend to have more loyalty and trust associated with skincare brands than other areas like makeup. That can create stickiness in the skincare subsector that’s good for long-term business. In other words, a typical purse may have name-brand face cleanser next to private-label mascara. If you look in that same purse a month later, the owner may have swapped their mascara brand, but likely not the cleanser’s. “Beauty is kind of similar to having a Birkin but wearing a Target T-shirt,” said TD Cowen analyst Oliver Chen, referencing the ultra-expensive Hermès bag. “Customers don’t necessarily go, ‘Oh, I’m this kind of shopper.'” Industry followers also noted that skincare is less cyclical than other beauty sectors. That’s because it can be considered more of a necessity, while other beauty products can be characterized by consumers as a splurge. Because of this, consumers are viewed as less likely to switch to a cheaper brand of skincare or stop buying it altogether than other beauty items if personal finances deteriorate. “Just because she has less disposable income, she’s not going to stop doing her skincare regimen,” D.A. Davidson analyst Linda Bolton Weiser said. Skincare has been able to sustain its pandemic boost after consumers started paying more attention to their products and skin health during lockdowns, according to Bolton Weiser. Makeup, on the other hand, has seen more tumultuous patterns: a lockdown-induced pullback was succeeded by a post-pandemic boom, only to now cool again as habits normalize. Men are also more likely to use skincare products while overlooking other subsectors, creating a bigger market for the former, analysts said. Some have gone so far as to argue that certain beauty companies should be seen as consumer staples rather than discretionary names given the modest cyclicality in skincare. The sector is also favored for its relative profitability. “There are some sort-of discretionary stocks that are really just like three staple stocks in a trench coat because they’re not going anywhere,” Motley Fool investment analyst Shelby McFaddin said. She added that the industry as a whole has “gorilla grip-like” stickiness. Stocks to watch Beauty companies typically span the gamut, offering products for everything from foundation to face wash. Some corporations are more exposed to the skincare subsector than others, but analysts said that isn’t a silver bullet when deciding where to invest. Bolton Weiser and Chen both noted Estee Lauder has the largest share of business in skincare. But global skincare means exposure to China, which is actually a reason for pause on the stock. “If you’re big in skincare, you’re big in Asia,” Bolton Weiser said. She said current challenges are more reflective of the lingering impacts of pandemic lockdowns and supply chain snarls than of demand itself. The stock has dropped 46% this year. But Wall Street sees a reprieve on the horizon: the average analyst has a buy rating and price target suggesting shares could add 7.5% in the next year, according to LSEG. Coty has been largely spared from these inventory problems given that it’s less connected to skincare. However, Chen said that the product family can become a bigger part of Coty’s story as the company looks to build out its market share in the category. The stock, which is less than $1 above where it finished 2019, has an average rating of hold from analysts. Still, the upside implied by the average price target is about 10%, per LSEG. COTY EL 5Y mountain Coty and Estee Lauder over the past half decade. Chen called Sephora parent LVMH a big winner to watch, saying it’s extremely diversified within the beauty landscape. Retailer Ulta Beauty has become an industry favorite on Wall Street, with the average analyst surveyed by LSEG holding a buy rating and price target implying nearly 11% upside. The stock has underperformed the broader market this year, gaining just under 3%. Chen called Ulta one of his top retail stock picks around Black Friday alongside Walmart as consumers focus on value this holiday season. Ulta is a good choice because the company sells a range of beauty products across price levels, the analyst said. Ulta’s attempts to broaden offerings for people of color could benefit shares in the long term as the importance of diversity and inclusion within beauty grows, Chen added. The retailer has an accelerator for early-stage beauty companies serving consumers from diverse backgrounds. Focus on innovation Increased innovation and medicalization of skincare is another industry trend market participants are watching. With this in mind, Strategy Asset Managers CEO Tom Hulick said L’Oreal is a company that is ahead of the curve on anti-aging science. He pointed to investments going back more than two decades in skin cell biology research. Motley Fool’s McFaddin said L’Oreal has unique products that would be hard for consumers to part with such as creams to fight dark spots. The company is also less focused on brand esteem than competitors, making it better positioned to act in a promotional environment, she said. ELF YTD mountain E.l.f. this year In the same vein, Chen said E.l.f. Beauty is a particularly quick innovator. The company finished its $355 million acquisition of skincare brand Naturium in October. It has been a banner year for E.l.f., with shares up more than 130% since the start of 2023. The average analyst polled by LSEG sees more steam ahead with a buy rating and a price target reflecting the potential for another 10% gain. That climb comes amid a period of strong earnings and guidance. Notably, E.l.f. has raised its full-year outlook for the past two quarters. E.l.f. is known for its marketing on TikTok in a bid to reach younger consumers. It’s a popular place for finding products and brands given the ubiquity of “get-ready-with-me” videos and the growth of influencer marketing. Clips captioned with the hashtag #SkincareRoutine have garnered more than 71 billion views on the ByteDance-owned platform as of early December.
Sumber: www.cnbc.com
