In this article, we will discuss 10 Best Beauty Stocks To Buy According to Short Sellers.
The US beauty market, which is seeing major shifts in distribution and customer interaction, continues to be a key area of interest for stakeholders. Beautymatter CEO Kelly Kovack underlined that consumer-driven channels have replaced traditional distribution strategies, compelling companies to engage with customers wherever and whenever they’re most comfortable.
According to a report, the US beauty market is expected to grow to $114 billion by 2027. On the other hand, the prestige channel saw its third straight year of double-digit growth in 2023, rising by 14% to $31.7 billion, outpacing the mainstream market across make-up, skincare, hair, and fragrance, according to the February 2024 CEW conducted annual “Global Trend Report” virtual event. Luxury brands represent the fastest-growing segment, with sales surpassing $16 billion, although being smaller at 11% of the market.
Bigelow Trading’s Daina Nadler emphasized the value of multichannel distribution plans that are customized to a wide range of consumer buying preferences. According to John Cafarelli, CEO of Beautymatter, 87% of US beauty lovers prefer in-store shopping, and 80% of them frequent stores that specialize in beauty products. In-store shopping continues to be popular. In order to increase traffic and loyalty, Space NK’s Noah Rosenblatt and H-E-B’s Jeanne Tamayo stressed the significance of creating compelling retail spaces and solid brand-consumer relationships.
In contrast, although offline retail in China is declining by 4%, e-commerce and social commerce, particularly Douyin, are growing at 9% and 57%, respectively, according to Nielsen IQ. China is a resilient beauty market, and despite all of the difficulties following the pandemic, it remains the world’s second-largest beauty market, posing numerous challenges for international suppliers notes Vice President of Nielsen IQ Gautam Seth. He also points out that local companies are more successful because they employ local ingredients and have a strong cultural connection. Industry giants like Jina Lee of Urang and Kim Da Jeong of Lotte Department Store have stressed the importance of consumer knowledge about ingredients and product efficacy.
The emphasis on diversity is also influencing the global beauty market, although many individuals continue to feel underrepresented in health and beauty advertisements as per Circana. Expectations from consumers about varied representation in terms of gender, color, age, ability, body size, and sexual orientation are at an all-time high. A general market and a multicultural market will not differ by 2044 due to the majority-minority population in the United States. According to a study by SeeMe Index and Circana, brands that are certified inclusive grow 1.5 times faster than brands that are not. Additionally, the likelihood of seeing individuals over 55 in these brands’ advertisements who equally represent straight and homosexual partnerships is 2.5 times higher than that of less inclusive brands, which are 12 times more likely to just feature straight relationships.
Looking ahead, the global beauty market is expected to generate retail sales of over $580 billion by 2027, with an annual growth rate of 6% per report.
One area gaining attention and stimulating beauty business is the growing consumer interest in wellness within beauty. According to a survey on wellness trends in 2024, 82% of US consumers, 87% of Chinese consumers, and 73% of British consumers now rank wellness as a top or important priority in their daily lives. The Goop, one of the “Most Successful Celebrity Beauty Companies in the World,” philosophy is that “beauty is wellness and wellness is beauty.” Beauty firms are entering this space. A massive beauty brand and the Stanford Institute on Longevity have teamed up to develop a new age-reversal technology-powered product.
With that said, here are the 10 Best Beauty Stocks To Buy According to Short Sellers.
Copyright: pepperbox / 123RF Stock Photo
Methodology:
We sifted through holdings of beauty ETFs and online rankings to form an initial list of 20 beauty stocks. Then we selected the 10 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
10. The Honest Company, Inc. (NASDAQ:HNST)
% of shares shorted: 2.55%
One of the Best Beauty Stocks To Buy According to Short Sellers, The Honest Company, Inc. (NASDAQ:HNST). The company established by American actress Jessica Alba is a digitally native consumer goods manufacturer that manufactures products with a purpose and that are accessible to everyone. Since it is an omnichannel company, customers can purchase its goods through the company’s retail and digital platforms wherever they buy. The company sells three different product categories: Household and Wellness, Skin and Personal Care, and Diapers and Wipes. Of these, the sale of diapers and wipes accounts for the majority of its revenue. The company is limited to US operations.
Meridian Contrarian Fund stated the following regarding The Honest Company, Inc. (NASDAQ:HNST) in its fourth quarter 2023 investor letter:
“The Honest Company, Inc. (NASDAQ:HNST) is a consumer products company focused on developing natural baby-care consumables, cosmetics, soaps, and other household supplies. Honest went public in 2021 as the pandemic helped drive high demand for its cleaning products. Subsequently, global supply chain challenges proved exceptionally tough for the smaller company. We view the Honest brand as an authentic differentiator that has outgrown its categories despite the operational challenges that significantly hurt recent earnings potential. The Honest Company’s outperformance in the quarter and second half of 2023 was driven by the company showing increased traction on sales returning to growth – despite significant SKU rationalization – along with deepening relationships with the largest retailers in the US, Walmart, Target, and others. The results increased optimism into 2024 and beyond as the new management team makes improvements to the company’s product positioning, along with improving cost control. With significant white space to grow sales of its winning products on shelves and online, we expect The Honest Company to see years of growth and increasing returns. We added to our net holding over the course of 2023 to take advantage of the deeply discounted stock. Yet, we harvested some tax losses early in the fourth quarter to manage taxes and maintain appropriate risk exposure.”
Following the company’s Q2 2024 results and raised guidance, Loop Capital increased its price objective for Honest Company from $3 to $5 and maintained its buy recommendation on the shares. Despite strong Q1 revenue growth, profitability gains, and a strong balance sheet, the company’s shares finished down 2% year to date. The analyst informs investors in a research note that the stock will catch up with the market’s performance due to the outsized growth in Q2. The firm may be open to take-out offers if profits improve because shares are still much below the $16 IPO price, the firm added.
In Q2 20224, revenue reached a record $93 million in revenue, up 10% YoY, and improved profitability with a 38% gross margin YoY driven by strong sales growth across the wipes and baby product portfolios. Additionally, the company expects revenue growth in the second half of the year to match the first half’s 7% growth.
Insider Monkey monitored that 18 hedge funds out of the 912 hedge funds held a position in The Honest Company, Inc. (NASDAQ:HNST) as of the end of the Q2 of 2024. George Mccabe’s Portolan Capital Management is the largest shareholder in the company, with 8,105,357 shares worth $23.67 million.
9. Kenvue Inc. (NYSE:KVUE)
% of shares shorted: 2.34%
Kenvue Inc. (NYSE:KVUE) is the world’s largest pure-play consumer health company by revenue, with $15 billion in annual revenue. The company, formerly the consumer division of Johnson & Johnson, spun out and went public in May 2023. Analysts anticipate that Kenvue would prioritize expanding its 15 priority brands—including Tylenol, Nicorette, Listerine, and Zyrtec—to fuel future growth, given its ability to use funds and make investments as a stand-alone company.
As with several of its wide-moat competitors, Morningstar analysts predict the company to invest about 3% of sales in R&D to introduce cutting-edge goods, particularly in the digital consumer health space. The Zyrtec AllergyCast app and the Nicorette QuickMist SmartTrack spray are two recent examples.
Many of the most well-known brands in the industry are included in its portfolio, including Johnson’s, Neutrogena, Listerine, Tylenol, and Aveeno. A number of the firm’s brands are the global leaders in their respective segments because of their tremendous brand power, despite operating in a fragmented business with fierce competition and constantly shifting customer tastes.
Oakmark Fund stated the following regarding Kenvue Inc. (NYSE:KVUE) in its first quarter 2024 investor letter:
“Kenvue Inc. (NYSE:KVUE) became the largest standalone consumer health company following its split-off from Johnson & Johnson in May 2023. The company’s highly recognizable brands, such as Neutrogena, Listerine, Tylenol and Band-Aid, have been market share leaders in their respective categories for generations. However, Kenvue’s first year as a public company was clouded by litigation and market share losses in certain categories. As a result, Kenvue now trades for just 16.5x trailing earnings, a substantial discount to the market and other consumer health and packaged goods companies. We see an opportunity for the company to improve efficiency and re-invest the cost savings into increased product development and marketing, which should help improve its growth and brand equity.”
The stock price of Kenvue increased as a result of the company’s Q2 results, which showed $4.0 billion in revenue and 1.5% organic growth, indicating a turnaround. The company’s high-intangible brands and cost-cutting measures are anticipated to provide sustained momentum in spite of macro headwinds.
The average 12-month price objective for this stock, as projected by 11 analysts, is $22.45, representing a 2.28% increase from the firm’s current price of $21.95.
8. Olaplex Holdings, Inc. (NASDAQ:OLPX)
% of shares shorted: 2.18%
Olaplex Holdings, Inc. (NASDAQ:OLPX) is a technology- and science-driven beauty firm. It provides treatments supported by science to enhance hair health. In partnership with the industry’s leading hairstylists and consumers, it determines the most pertinent haircare issues that consumers have, then uses its in-house innovation and unique technologies to try and solve them. It provides products through a worldwide omnichannel platform that caters to DTC, specialty retail, and professional markets.
The company sells its hair care products to generate revenue. The Professional sales channel is the company’s main source of revenue, followed by Specialty Retail and DTC. Geographically, the company’s international markets account for the majority of its sales.
Despite a 35% fall in revenues in 2023, insider purchases caused the recent spike in the beauty company’s share price, showing market hope for a turnaround. The company is still profitable and has a solid market share in high-end hair products, making it one of the Best Beauty Stocks To Buy According to Short Sellers.
Telsey Advisory upgraded Olaplex’s price objective to $3 from $2, interpreting the company’s Q2 2024 results as evidence that CEO Baldwin’s tactics are bringing stability to the company.
Olaplex Holdings, Inc. (NASDAQ:OLPX) has hedge fund sentiments of 18 in Q2 2024. Jim Simons’s Renaissance Technologies is the largest shareholder in the company, with 2,501,400 shares worth $3.85 million.
7. Inter Parfums, Inc. (NASDAQ:IPAR)
% of shares shorted: 1.91%
Inter Parfums, Inc. (NASDAQ:IPAR) is a company that creates, promotes, and distributes fragrances and products linked to fragrances. The product is marketed under various brand names, including COACH, Paul Smith, Bebe, Jimmy Choo, and Abercrombie & Fitch.
The company is divided into two operating segments: operations located in Europe and activities in the United States. Department stores, specialty shops, and perfumeries, as well as local and foreign wholesalers and distributors, are among the clients of the company.
Headwaters Capital Management stated the following regarding Inter Parfums, Inc. (NASDAQ:IPAR) in its fourth quarter 2023 investor letter:
Buys: Inter Parfums, Inc. (NASDAQ:IPAR): Inter Parfums is a leading fragrance house that partners with prestige brands to develop, manufacture, market and distribute perfumes globally under licensing agreements. IPAR was founded in 1982 by Jean Madar and Phillipe Benacin, who collectively own 44% of the company. Both founders are still actively involved in the company with Mr. Madar serving as the CEO of IPAR’s US operations while Mr. Benacin is CEO of the European business, Inter Parfums SA (publicly traded European subsidiary that is 72% owned by IPAR). IPAR focuses on licensing agreements with prestige brands that already have a devoted brand following in categories outside of fragrances. IPAR typically targets brands with fragrances that have either been under-managed or are relatively nascent but have large growth potential via a dedicated fragrance strategy. IPAR’s top fragrance brands include Montblanc, Jimmy Choo, Coach, and Guess. Over the last 2 years, IPAR has added fragrance licenses with Ferragamo, DKNY, Lacoste and Roberto Cavalli, all of which should meaningfully contribute to revenue growth for the company going forward.
The fragrance market is a niche category that requires scale and expertise that is better outsourced to a third party than managed internally by leading brands. The cost to design, market and distribute a fragrance line is too expensive relative to the potential revenue from the product. While top fragrance brands can generate revenue of $1-2 billion, most successful fragrance brands generate revenue in the $10-200mm range. Despite the small size, category extension into fragrances can still be a lucrative business for brands and serves to enhance the value of the brand if managed correctly. As a result, prestige brands often enter into licensing agreements with dedicated fragrance houses such as IPAR to manage their fragrance category. IPAR leverages their internal expertise that is required to design, manufacture, market and distribute a single fragrance over many brands…” (Click here to read the full text)
The fragrance company has expanded effectively since the business was able to get a rich portfolio of licenses. Analysts are bullish that IPAR will continue to expand as a result of new product releases and developments.
Hamed Khorsand of BWS Financial kept his Buy rating on IPAR with a $172 price target, citing the company’s objectives to expand further into the luxury fragrance market in 2025 and its strong Q2 2024 sales recovery by 11% YoY. Khorsand expects stock valuation to rise over the next year based on stable consumer behavior and a positive outlook for IPAR.
IPAR is one of the Best Beauty Stocks To Buy According to Short Sellers, and it has hedge fund sentiments of 18 in Q2 2024. Chuck Royce’s Royce & Associates is the largest shareholder in the company, with 590,830 shares worth $68.55 million.
6. Coty Inc. (NYSE:COTY)
% of shares shorted: 1.55%
Global beauty manufacturer Coty Inc. (NYSE:COTY) concentrates mostly on color cosmetics (28%) and fragrances (59%), with limited exposure to skincare (5%) and body care (5% of sales). The company’s consumer cosmetics business is centered on acquired mass brands including Rimmel, CoverGirl, Max Factor, Sally Hansen, and Bourjois; for its fragrance business, it licenses luxury and high-end labels like Gucci, Burberry, Hugo Boss, Davidoff, and Calvin Klein.
Furthermore, Coty, one of the “Biggest Skincare Companies in the US,” launches makeup items using the names of social media stars Kim Kardashian and Kylie Jenner in partnership with them.
Recently, the firm revealed that it has signed a long-term license agreement with German model and television presenter Lena Gercke to develop, produce, and distribute her first fragrance. Thus, expanding and enhancing its business segment through the introduction of new products, labels, and technological advancements have led to this partnership.
Nearly 44% of the beauty company’s revenues come from Europe, 42% from the Americas, and 14% from Asia-Pacific, according to the region. JAB, a German investment firm, holds a controlling 53% stake.
Since taking over as CEO in 2020, Sue Nabi has brought Coty Inc. (NYSE:COTY) into better health by maintaining cost control, revitalizing the company’s brand promotion, and sharpening its focus on innovation with her 20 years of experience in the beauty industry. As a result, after the pandemic lows, both sales growth and profitability grew. The sales grew by 32.14% since pandemic lows.
Having said that, some analysts are still trying to convince that Coty has created an economic moat due to its lack of brand strength, insufficient connections with retailers, and small revenue base in comparison to its powerful global competitors, L’Oreal and Estee Lauder.
However, the beauty giant’s share price increased by 6% after Q2 2024 due to optimism in the premium fragrance market (which accounts for two-thirds of Coty sales) and management’s focus on innovation.
Following the company’s Q2 2024 results, which showed 10% YoY growth in sales to $6.1 billion and a 12% increase in adjusted EBITDA to $1.1 billion, in line with expectations, Morningstar analysts retain a price target of $11.40 for the company. In line with management’s projections, it estimates $6.6 billion in revenue (up 7.4%) and $1.2 billion in adjusted EBITDA (up 9%) for 2025.
Notwithstanding obstacles, Coty’s net revenue has increased over the last three years due to rising profit margins and expansion in the mass market and prestige beauty segment. The growth of the prestige channel exceeded that of the mass market in 2023, which prompted Coty to concentrate on developing a solid lineup in the prestige cosmetics market.
Hence, analysts are bullish on the stock and have given it a “Buy” rating. The average 12-month price objective set by the 13 analysts for Coty Inc. (NYSE:COTY) stock is $12.85, which is a 36.99% increase from the stock’s current price of $9.38.
The company has hedge fund sentiments of 23 in Q2 2024. Steve Cohen’s Point72 Asset Management is the largest shareholder in the company, with 5,582,064 shares worth $55.93 million.
5. Estée Lauder Companies Inc. (NYSE:EL)
% of shares shorted: 1.48%
Leading the way in the global prestige beauty market, Estée Lauder Companies Inc. (NYSE:EL) offers top-selling brands like Aveda, Bobbi Brown, Clinique, M.A.C., La Mer, Jo Malone London, and Origins.
The company participates in the skin care (51% of Q2 2024 sales), makeup (29%), fragrance (16%), and hair care (4%) categories.
Boasting operations in over 150 countries, the beauty behemoth’s revenue is split as follows: 30% comes from the Americas, 39% from Europe, the Middle East, and Africa (including retail travel), and 31% from Asia-Pacific.
Department shops, travel retailers, specialized multibrand beauty stores, brand-specific freestanding stores, online sales, salons and spas, and perfumeries are some of the channels by which the company distributes its products.
EL, a top supplier of high-end beauty products, has maintained its preferred vendor status on both physical and digital platforms and strengthened its competitive position with market-leading brands in skin care, cosmetics, and fragrances. These characteristics, along with scale-based cost advantages, should promise a sustained competitive advantage that allows the company to generate excess returns for over two decades.
Estee Lauder completed the 2024 fiscal year with mixed results while exceeding estimates for adjusted earnings and revenue. Despite a spike in sales of skincare products, the company faced declining demand in China and North America and declared that CEO Fabrizio Freda will resign at the conclusion of the 2025 fiscal year.
Even though the recent reductions in Chinese and travel retail sales, D.A. Davidson analyst Linda Bolton Weiser kept a Buy rating on Estée Lauder with a $130 price target, noting a potential rebound from inventory concerns as well as positive long-term prospects. Weiser’s target, which is based on a 40-times multiple of the projected $3.25 EPS for 2025, shows confidence in the company’s future performance.
The company has hedge fund sentiments of 47 in Q2 2024. Ken Griffin’s Citadel Investment Group is the largest shareholder in the company, with 3,037,570 shares worth $323.20 million.
