If you had a direct investment choice between similar multinational businesses in the luxury-goods sector, but one was US-based and the other one was from Europe, which would you choose?
Europeans invented the luxury-goods business, but their large companies are more heavily regulated and pay higher taxes. The US is freer and more dynamic, and its firms have easier access to capital and labour.
With the help of a visiting researcher, Vestact recently took a closer look at L’Oréal and Estée Lauder, which are similar global businesses in the beauty-products industry. The former is French, with its headquarters in the Parisian suburb of Clichy.
The latter was founded by Estée Lauder in New York in 1946.
Both companies are doing well, because looking and smelling good never go out of fashion. Of course, the businesses are not identical. Estée Lauder is more focused on skincare, makeup and cosmetics. L’Oréal offers those too, but adds a big haircare-product business and has a more diverse set of sales outlets.
Both companies have a large share of the rather saturated markets of Western Europe and North America. The differences are more notable in the higher-growth regions. The Asia-Pacific region is fast becoming the most important for both companies, due to large populations and a growing middle class. In both India and China, L’Oréal has a significant edge.
L’Oréal is also two-and-a-half times bigger by market capitalisation. Its stock is also a bit cheaper (as measured by its price-to-earnings ratio), perhaps reflecting its heavier tax burden. Estée Lauder has more debt on its balance sheet, which is typical of American corporates. On balance, L’Oréal is probably the better option, despite our more general preference for US companies.
• Theron is CEO of asset manager Vestact
• From the October edition of Wanted 2019.