We recently published a list of 12 Best Beauty Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Spectrum Brands Holdings, Inc. (NYSE:SPB) stands against other best beauty stocks to buy according to hedge funds.
According to a report by McKinsey, in 2023, the global beauty market expanded by 10%, reaching $446 billion in retail sales, mostly due to price hikes rather than volume advances. North America and Europe grew steadily, but the Middle East & Africa (18%) and Latin America (17%) grew at the quickest rates, with China trailing behind at 3% because of poor consumer sentiment. The market is expected to reach $590 billion by 2028 at a compound annual growth rate (CAGR) of 6%, with growing markets and Asia-Pacific driving development. Skincare (44% of the market) had stable growth, while fragrance (14%) was the category with the quickest rate of growth, driven by luxury niche brands. Beauty businesses must employ premiumization, innovation, and skin care-infused cosmetics to transition from price-driven to volume-driven growth to maintain momentum, especially in high-growing markets like the Middle East and India.
A significant contributor to the American economy, the beauty industry generated $94.36 billion in sales in 2023 and employed 4.6 million people in manufacturing, retail, and distribution. Costs increased by 6.5% due to inflation, which affected customer spending patterns and raised demand for reasonably priced “dupes.” In 2023, e-commerce beauty sales reached $21.3 billion, a reflection of changing consumer preferences. Despite economic downturns, consumers continue to make little luxury purchases, a phenomenon known as the “lipstick effect.” Private equity investors show their confidence in the potential of the beauty industry by continuing to invest in scalable beauty brands. Disruptions in the supply chain have pushed up near-shoring initiatives, which have helped create jobs in the United States. DC Advisory states that “the beauty sector’s adaptability ensures long-term relevance and economic impact.”
Recently, as the holiday season approached, the U.S. beauty business was still doing well, with mass market sales up 2% year over year and the prestige market expanding 7% to $22.8 billion, according to Circana. Lipcare sales increased 21% in dollars and 23% in units, due to high demand for tinted balms and oils. As a result of consumers’ price sensitivity, mid-range skincare brands are expanding six times faster than luxury skincare. Sales of fragrances surged 14%, with premium brands up 15%, while prestige hair care climbed 8%, driven by style and scalp care items. According to 29% of customers, the Christmas season is a critical time to purchase beauty presents. Larissa Jensen, global beauty industry advisor at Circana stated:
“Prestige beauty epitomizes the indulgence in little luxuries and acts as an indicator of the consumer mindset for the beauty industry overall,” “This holiday season, its resiliency will be tested. There has been some pullback in spending throughout 2024, but big increases in prestige beauty spend from higher-income households with children under 18-years-old indicate parents are indulging Gen Alpha with these products. The social media virality of this new generation of beauty enthusiasts shows no sign of slowing and could be a pivotal holiday growth driver.”
The increasing integration of artificial intelligence (AI) appears to have affected every business, and the beauty industry is no different. AI is already changing the way beauty brands function, and its impact is only going to increase. According to a survey by Perfect Corp., 77% of experts in the beauty industry think that conversational AI agents—like chatbots and virtual assistants—offer unparalleled possibilities for customizing encounters. These tools enable accurate answers to questions, individualized product recommendations, and immediate, round-the-clock customer support.
A person enjoying the convenience of their pet products, that simplify clean-up.
Methodology
We sifted through holdings of beauty ETFs and online rankings to form an initial list of 20 beauty stocks. From the resultant dataset, we chose 12 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 900 hedge funds in Q3 2024 to gauge hedge fund sentiment for stocks. We have used the stock’s Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
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).
Spectrum Brands Holdings, Inc. (NYSE:SPB)
Number of Hedge Fund Holders: 37
One of the Best Beauty Stocks, Spectrum Brands Holdings, Inc. (NYSE:SPB) is a firm that sells consumer products and household necessities. The business supplies consumer batteries, locksets for homes, hardware for home builders, grooming supplies, and personal care items. The company oversees operations in three product-focused segments: home and garden, global pet care, and home and personal care. North America, Europe, the Middle East and Africa, Latin America, and Asia-Pacific are the regions where the company manufactures, markets, and distributes its goods.
In fiscal Q4 2024, Spectrum Brands Holdings, Inc. (NYSE:SPB) achieved a revenue increase of 4.46% YoY as a result of its ongoing business investments. Despite an additional $62 million spent on R&D, marketing, and advertising, the company produced impressive results in fiscal 2024, with adjusted EBITDA growing by more than 20%.
After finishing the year with net leverage below 0.6 turns, the balance sheet showed tremendous strength, enabling future expansion. Spectrum Brands Holdings, Inc. (NYSE:SPB) increased its quarterly dividend by 12% to $0.47 per share, showing confidence in its projections. As consumers shifted to online shopping, e-commerce sales became a major growth engine.
Net sales for the Home & Personal Care (HPC) division grew 4.1% year over year, with a 5.4% increase in organic net sales after deducting a $4.4 million negative foreign exchange impact. Both the Home and Personal Care categories witnessed mid-single-digit growth, which drove the increase in organic net sales. Increased promotional activity contributed to higher sales volumes in all categories.
Brian McNamara, a Canaccord analyst, increased the firm’s price objective for Spectrum Brands Holdings, Inc. (NYSE:SPB) from $91 to $94. Sales were almost 4% higher than expected, while profitability metrics fell short, according to the company’s mixed Q4 of 2024 results.
Overall, SPB ranks 8th on our list of best beauty stocks to buy according to hedge funds. While we acknowledge the potential for SPB to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SPB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
