Beauty and Bullets
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Imagine a film noir femme fatale grasping a pearl handled gat (forties lingo for gun) with carmine red nails and crimson lips standing over one of the lugs (forties talk for bad guys who aren't too bright) she just plugged (translate killed). Think Joan Crawford, Bette Davis, Lauren Bacall or Hedy Lamarr. She's got cheekbones and shoulder pads that could cut glass. If you can visualize that you'll be able to remember two themes that have been smoking hot this year, beauty stocks and gun stocks.
Glamour and Guns
Estee Lauder Companies (NYSE: EL) and Ulta (NASDAQ: ULTA) have had spectacular runs of late. Since the March 2009 low below $10.00 Ulta has climbed to an all-time high after the close on September 6 on great numbers from its Q2 earnings release
Ulta is considered a destination store for beauty with in store full service beauty salons and make up artists, also called aestheticians. They operate 489 stores in the US and are opening 52 more this year. The company has strong institutional support of 73% and an insider hold of 25% of shares outstanding. The P/E is 46.04.
After reporting Q2 earnings of $0.54 per share beating estimates and a 22.1% revenue rise the company also guided higher for fiscal year 2013. Comps were better by 9.3% from a year ago. All this good news sent shares spiking 8% in the after hours market.
CEO Chuck Rubin attributed the numbers to the new store openings and the 10 million member loyalty program as well as the catalogs and website. While recent reports of former CFO Gregg Bodnar’s sale of $11.8 million of the stock roiled shares, he was leaving anyway and was succeeded by Bruce L. Hartman as new CFO on September 7.
Estee Lauder Company may not be a ten bagger it has run from a low of $10.00 in 2009 to a 52 week high of $65.60 The 23.60 billion market cap company reported on August 14 a 41.7% rise in earnings per share from a year ago. Net sales rose $.9 billion and despite all the many companies crying weakness in Europe this earnings season Estee Lauder’s European sales were up 12%. Estee Lauder’s P/E at 28.22 is considerably higher than the industry average of 18.71 and higher than competitors L’Oreal SA and Procter & Gamble but it is considered a high end name. Its price to share ratio is 2.38 right in the middle of Procter & Gamble at 2.21 and 2.80 for L’Oreal.
A significant insider sale by Ronald S. Lauder, head of the Clinique division, filed on August 30 of $4,367,503 worth of shares as well as insider sells outpacing buys almost two to one have been mentioned as a worrisome trend. Still, Lauder family members still hold over 2.5 million shares.
Pistol Packin' Mamas
Smith & Wesson (NASDAQ: SWHC) also reported after the bell on September 6 and its good numbers exploded over 19% in the after-hours market. The Q1 earnings beat of $0.10 shouldn’t have surprised analysts as the growing backlog of orders was widely reported. Many gun enthusiasts have been muttering darkly about the access to guns in the event of an Obama win. Recent news events most tragic have also spiked sales.
Smith & Wesson has a P/E of 36.44 but its EPS rise of 600% in a year caused KeyBanc to downgrade the gun stocks on August 15. They justified the call predicting a slowdown in sales after the election likely continuing for a few years. The downgrade sent shares lower by 9%.
The FBI releases numbers on background checks for gun purchases each month and every month those numbers are higher. According to the Q2 earnings Sturm Ruger conference call those checks were up 21% this year. The gun companies have also stated that more women are buying guns than ever. Imagine our femme fatale has time traveled to the present perusing pink handgun websites. (Google it: they are out there.)
So what do Smith & Wesson’s numbers mean for competitor Sturm Ruger (NYSE: RGR)?Looking at the chart it’s actually outperforming Smith &Wesson and has a lower P/E of 16.60 and a nice yield of 3.50%. After Smith &Wesson’s numbers it spiked by 4.35% in the after hours markets. This stock is up 50.52% over the last 52 weeks. Can you still buy now?
That yield makes it more enticing than Smith & Wesson and it may settle down before it reports again on October 29, 2012. It has no debt and has a yield but that still hasn’t deterred a coterie of short sellers at 40.20% of the float who are betting on the ‘too far, too fast’ thesis. Smith & Wesson’s short interest is 11.90%.
When it reported on August 2 CEO Michael O. Fifer said,” both in the second quarter and the first half of 2012 our earnings growth (73%) exceeded our sales growth (50%) and we’re very proud of that.” He also noted that a third of sales came from new major products introduced in the last two years. So, the company is innovating and growing.
Which gun and lipstick stocks should our femme fatale choose? I think she’ll be packing some Sturm Ruger heat with its higher yield and lower P/E in her purse along with her Estee Lauder lipstick stock.
Note: Hollywood trivia here, Joan Crawford was one of the first celebrity endorsers of a major cosmetic, Youth-Dew by Estee Lauder.
(Charts courtesy Yahoo finance)
leglamp has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Ulta Salon, Cosmetics & Fragrance. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.