An Insider Just Bought $25 Million of Beaten-Down Estee Lauder Stock. Should You Follow the Big Money?

Core Viewpoint - Estee Lauder presents a potential investment opportunity as its stock has significantly declined, trading at levels not seen since 2013, despite owning well-known brands [1] Group 1: Insider Activity - Estee Lauder director Paul J. Fribourg purchased $24.9 million of stock at an average price of$64.27 per share, marking his first open-market purchase since joining the board in 2006 [2][3] Group 2: Sales Performance - Estee Lauder's sales have been adversely affected, particularly in China, where sales have declined double-digits, previously accounting for about 30% of total sales [4] - North America sales decreased by 1% in constant currency, while Europe, the Middle East, and Africa saw a 4% decline, although Europe showed single-digit growth when excluding travel retail sales from Chinese travelers [5] Group 3: Management and Internal Issues - Internal turmoil is evident as Jane Lauder suggested the ousting of her cousin William, the Chairman since 2009, following her being passed over for the CEO position [6][7] - The board appointed Stephane de la Faverie as the new CEO, raising concerns about management's strategy moving forward [7] Group 4: Turnaround Potential - A potential turnaround could be influenced by improved macroeconomic conditions in China, especially with recent stimulus measures aimed at boosting consumer confidence [8] - Estee Lauder's "Profit Recovery and Growth Plan" aims to cut $800 million to$1 billion in annual costs, with an additional restructuring plan targeting $350 million to$500 million in savings, totaling $1.15 billion to$1.5 billion [9] Group 5: Financial Metrics - Despite revenue declines, trailing 12-month revenue has returned to 2019 levels, but operating profit has dropped from approximately $2.5 billion to$921 million [10][12] - The current market cap is $25.1 billion, with an enterprise value of$30.6 billion, suggesting a valuation of 10 to 12 times operating profit, which is low compared to historical trading multiples [13] Group 6: Risks and Uncertainties - The investment landscape remains uncertain due to changes in China’s economic environment, management dynamics, and increased debt from under $2 billion to$5.5 billion since the pandemic [14][16] - The recent quarter's performance was worse than the previous three, indicating a revenue trend below 2019 levels, which raises concerns about the effectiveness of the cost-cutting measures [18]