About: LÓréal is the world’s largest beauty and cosmetics company and operates across make-up, hair care, hair colour, skin care and perfume in most countries in the world. It owns iconic beauty brands such as LÓréal Paris, Maybelline, Lancome, Garnier and Redken.

Why it’s in the portfolio: Based in Paris, LVMH is the world’s premier luxury goods company. It’s activities and major brands include wines & spirits (Moët & Chandon, Hennessy); Fashion & Leather Goods (Louis Vuitton, Christian Dior, Celine, Fendi); Perfume & Cosmetics (Parfums Christian Dior, Guerlain); Watches & Jewellery (Bvlgari, Chaumet, Tag Heuer, Hublot); and Selective Retailing (Sephora, DFS). LVMH sells primarily through its own retail stores, controlling price, availability and the customer experience.

Thirdly, L’Oréal takes a somewhat unique approach to its organisational structure. The business wants to be a large company, to be a leader, but to retain the spirit of a small company. L’Oréal is strategically concentrated but operationally decentralised to keep decision-making close to the ground where customer trends emerge locally, thus bringing agility and excellence onto the field.

Lastly, L’Oréal is committed to innovation and spends more on R&D than any of its peers. This innovation is reflected in new product formulations, delivery formats, and creative omni-channel engagement, driving new wins and repeat purchases.

L’Oréal has grown at a rate comfortably in excess of GDP over the last decade, and earned a return on invested capital of around 13%.

Fundamentals: OR has a market cap of $140b USD, a PE of 35.7x forward earnings, EPS of 7.0x forward earnings and a PEG ratio of around 4.1. The company currently has a 1.5% dividend yield and a 21.7% payout ratio. The company’s debt to assets are currently 3.2% and debt to equity is 4.6%.

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