China’s interest-rate cuts gave the cosmetics company’s stock a lift.
Shares of Estee Lauder (EL 6.05%), the cosmetics giant, were gaining today in response to news that China’s central bank was lowering interest rates to stimulate the economy. China is a key market for Estee Lauder, and the business has been struggling, so it’s not surprising to see the stock react positively to the news. As of 12:37 p.m. ET, shares were up 4.1%.
Will China bounce back for Estee Lauder?
China stocks rose broadly today, especially consumer-facing ones, as the People’s Bank of China cut mortgage rates and interest rates by 50 basis points in an effort to stimulate the economy. The move was designed to encourage more lending. The central bank also reduced the required reserve ratio for banks, freeing up an estimated $142 billion for loans.
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Estee Lauder figures to be one of the winners from the move. The stock had soared during the pandemic, thanks to strong demand for skin care products from China, but it’s fallen more recently, hampered by the weak economy.
Still, China represents a significant market for Estee Lauder. For the year ended on June 30, the Asia/Pacific region, which is mostly made up of China, generated nearly a third of the company’s revenue. A rebound in China sales could be significant, especially as it has historically been a highly profitable market for the company.
Can Estee Lauder capitalize on the move?
Management cited weakness in China in its most recent earnings report, saying it was a major reason why revenue fell 3% in the Asia/Pacific region in the fiscal fourth quarter.
China’s 50-basis-point rate cut alone might not be enough to revive the stock, but investors should keep an eye on it as Estee Lauder stock is down more than 75% from its former peak, giving it an opportunity for a comeback. The company has a large stable of well-known, global brands and should recover eventually, one way or another.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
