Nu Skin Or Inter Parfums: Which Cosmetic Stock Looks Better?
Zacks Investment Research | Sep 22, 2017 02:44AM ET
The cosmetic industry is in huge demand currently, particularly in the luxury arena and in makeup, buoyed by increased consumer spending. Apart from buying essential and non-durable goods, consumers have started spending on beauty and personal care products in addition to apparel and footwear as well as personal accessories.
The rise of e-commerce and social media has provided a further impetus to the fast-growing beauty channels. In fact, the U.S. beauty sector is reportedly expected to reach $90 billion by 2020 and the majority of the growth is expected to come from premium beauty products and services.
How Is the Cosmetics Industry Placed?
We note that the Zacks Cosmetics industry is currently placed at top 30% out of the 265 Zacks Industries. The industry has also been outperforming the S&P 500 market lately. In the last six months, the industry recorded around 8.8% growth, well above the S&P 500 index’s growth of 6.6%. Thus it may be a good idea to invest in cosmetics stocks at this juncture, as signs of surging consumer confidence and economic recovery is making the industry attractive.
Given this backdrop, let’s try to ascertain which of these two key cosmetics giants — Nu Skin Enterprises Inc. (NYSE:NUS) and Inter Parfums, Inc. (NASDAQ:IPAR) — presently make for a better investment option. Both Nu Skin and Inter Parfums carry a Zacks Rank #2 (Buy), highlighting the fact that they are likely to outperform in comparison to the broader market over the next one to three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Market Capitalization
Nu Skin’s market capitalization is around $3.3 billion, while that of Inter Parfums is $1.3 billion. Going by its business size, Nu Skin is undoubtedly has wider scale of operations and is better positioned in the long term.
Performance Trend
NY-based Inter Parfums has delivered positive earnings and sales surprises in the past four quarters. The fragrance maker has delivered strong sales in its three largest markets namely Western Europe, North America and Asia on a year-to-date basis.
The company expects sales to come from Jimmy Choo, Lanvin, Rochas and Coach brand products in the second half of 2017. In the recently concluded second quarter, the company managed to expand gross margin though reduction in sales of higher margin Abercrombie & Fitch and Hollister prestige products by U.S.-based operations. Advertising and promotion expenses also increased in the quarter.
Get The News You Want
Provo, UT-based Nu Skin posted upbeat second-quarter fiscal 2017 results, wherein both earnings and sales surpassed the Zacks Consensus Estimate. In fact, the company’s earnings have surpassed estimates in three out of the trailing five quarters. Revenues on the other hand declined 2% due to foreign currency fluctuations.
Dismal performance from Mainland China, South Asia/Pacific, Hong Kong/Taiwan, Japan and South Korea regions lowered revenues of Nu Skin. Nevertheless, the company, which develops and distributes anti-aging personal care products and nutritional supplements, remains focused on boosting its customers and sales leaders going forward. Nu Skin also plans to launch its ageLOC LumiSpa product in the fourth quarter this year, which is expected to generate roughly $100 million revenues.
For 2017, management continues to expect revenues of $2.26-$2.30 billion with an unfavorable currency impact of roughly 2-3%. Nevertheless, it raised its guidance for full-year earnings. Earnings per share are now projected in the band of $3.20-$3.30.
VGM Score
With the help of Zacks Style Score system , it is easy to pick stocks that have excellent prospects. Our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential. Such a score allows you to eliminate the negative aspects of stocks and select winners. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics.
Nu Skin seems to outpace Inter Parfums on VGM Score as well. Nu Skin’s VGM Score of A, combined with a Zacks Rank #2 is favorable than Inter Parfums’ VGM Score of D, despite having the same rank. Hence, we consider it a favorable investing option.
Price Performance
The performance of the companies is well reflected in their share price movement. If we look into the past six months performance of both the stocks, we note that while the industry grew 8.8%, shares of Inter Parfums increased only 7.6%. On the contrary, shares of Nu Skin surged 12.8%. The broader Consumer Staples sector increased only 1.3% in the said time frame.
Estimate Revisions
Upward estimate revisions are indicative of positive investor sentiment about a stock. The Zacks Consensus Estimate for Nu Skin has increased 4.2% for 2017 and 2.1% for 2018 over the last 60 days. It has gone up 1.6% for 2017 and 2.1% for 2018 over the same time frame for Inter Parfums. Both companies have shown positive growth trends, but Inter Parfums is expected to grow at a much slower rate than Nu Skin in the upcoming years.
Valuation Multiples
Notably, Nu Skin has a trailing P/E ratio (price relative to past year’s earnings) of 19.5, which is below the industry’s average of 27.5 and S&P 500 average of 20.3. On the other hand, Inter Parfums is over valued on the basis of trailing P/E multiple ratio of 29.9.
On the basis of forward P/E ratio (price relative to this year’s earnings), Nu Skin stands at 18.9, which compares favorably with industry’s average of 27.2 and S&P 500 average of 19.8. Inter Parfums, on the other hand, has a higher forward P/E of 31.1. So it is fair to say that a slightly more value-oriented path may be ahead for Nu Skin stock in the near term, too, as you can see in the chart below:
Valuation Multiple | NUS | IPAR | Industry | S&P 500 |
P/E (TTM) | 19.5 | 29.9 | 27.5 | 20.3 |
P/E F1 | 18.9 | 31.1 | 27.2 | 19.8 |
P/S | 1.5 | 2.2 | 2.4 | 3.2 |
EV/EBITDA | 9.9 | 13.3 | 21.7 | 11.1 |
If we look into another key metric Price/Sales ratio, we note that right now, Nu Skin has a P/S ratio of about 1.5. This is significantly lower than the industry average of 2.4 and S&P 500 average, which comes in at 3.2 right now. On the contrary, Inter Parfums has a P/S ratio of 2.2.
Similarly, on the basis of EV/EBITDA, Nu Skin has a lower EV/EBITDA than the industry and S&P 500 average, making it for favorable investing option.
The above arguments clearly states that Nu Skin is a better pick for investors.
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