The Latest Investment Move: Buying Stock in Beauty Companies

Image Source: Getty and Photo Illustration by Aly Lim

Whether you’re a casual consumer or a bonafide enthusiast, investing in your beauty routine can be costly. Stocking up on your favorite items, random drop-ins at Sephora, and quick trips to Target can add up over time, and before you know it, you’ve spent hundreds of dollars on your hair, skin, and nails.

If you’re looking for ways to stretch your funds a little farther, without having to give up your love of beauty, there may be a solution worth considering: investing. In E.l.f. Cosmetics’ recent “So Many “Dicks” campaign, representatives for tha brand revealed that the company has had 20 consecutive quarters of net-sales growth; as a result, searches for the term “elf beauty inc” and “elf beauty stock” have increased by over 50 percent.

Now more than ever it seems people are interested in investing in beauty and the brands they love. So it makes sense, then, that the next logical question would be how to do that.

“Investing in stocks is fairly easy,” Lance Madden, exchange trading funds transfer agent at Brown Brothers Harriman, tells PS. With all of the new technologies and platforms, anyone can and should start investing with an amount as low as $100,” Ernest Lyles, managing partner at The HiGro Group, adds. Ahead, we’re breaking down what to consider before investing in a beauty company, if it’s a good financial move, as well as how you can profit in the space.

Experts Featured in This Article

Lance Madden is an exchange trading funds transfer agent at Brown Brothers Harriman in Boston.

Ernest Lyles is a founding partner at HiGro Group and the CFO at Focus Impact Acquisition Corp.

How Do Stock Investments Work?

There are a few ways to invest in a company; one of the most common and simple forms of public investments is buying stocks. “Stocks are non-physical pieces of a company that you can buy/own,” Madden says. “It gives you a percentage of ownership over the company that allows you to essentially earn money when the company’s value increases.”

There’s no playbook when it comes to investing, which can make the space seem simultaneously daunting and full of possibility. “A general rule of thumb is to only invest in things you understand,” Lyles says. This means that if you’re considering investing in a company, understand its product and have a “why” behind your dollar. “Buy a stock because it’s a good company and business not because you think it’s safe. If you enjoy a company’s product, their mission, and the profile of their leaders and employees then that’s the company to buy,” he says.

As with any form of investment, there is a risk when it comes to buying stocks because a company’s value is based on projected profits. “This means that you can potentially lose money when the company loses value,” Madden says.

What Makes a Good Stock?

Naturally, your next question is likely: “What makes a good stock to invest in?” The answer will vary based on your personal goals. “If you are trying to grow your savings, you would want to look at a company that shows steady growth within its market annually, or within the range of your goal,” Madden says.

There are a few questions that he recommends asking yourself before buying stock in a company. “You need to see if the market that the stock is based in is stable,” he says. “Meaning, is there any news that would make the product that the company sells obsolete? Is this a new market that only a small population of people know about it? Is this a brand that you think could grow and become more popular, enough so that you are willing to risk your money on it?”

Madden also says to consider whether or not the company is turning a profit. “Every publicly traded company has summaries on their website that provide investors information on how their company is doing. Before investing in a company, research how their stock has done in previous weeks, months, and years, to have an understanding of how your money will be in the market. For instance, if a company is trending upward year-over-year for five years in a stable market there’s less risk in investing in that stock.”

What to Know Before You Buy Beauty Stock

There are two requirements before you invest in beauty Madden and Lyle agree on: do your due diligence but don’t wait too long to make a move. “Start off researching companies you use or are interested in,” Madden says. “I can’t stress this enough: being informed is your greatest tool. There are risks to investing so don’t unwittingly spend your money. Still, [if you’re a beauty enthusiast], odds are that if you like a company, other people do too and that is a good starting point to figuring out the types of beauty companies to invest in.”

The beauty market is complex – products are created based on trends that are seen whether in the creator space or via the worlds of editorial and high fashion. So if you’re looking to invest in this arena, ask yourself: Does this company have a variety of products that people commonly use? Does it stay ahead of fads in the market? Brand recognition and hero SKUs should also be factored into this decision. “If I were to invest in Estée Lauder, for example, I would look at what products they have as well as what I and the people around me regularly use,” Madden says. “I’d ask myself do I solely buy their brand because I like them or am I drawn to them because of the quality of their product.”

On the other hand, you don’t want to get stuck in the research phase, as Lyles also stresses that time is of the essence. “You don’t have to make a certain amount of money to invest,” he says. “It costs you more to wait for the ‘right’ moment, as you won’t get the full benefit of long-term compounding interest.”

You may have come across this term before, and it is one of the most efficient ways to make your investments work for you. In essence, whatever money you initially invest into a stock can build interest over time. You can take this interest and reinvest it, in turn gaining even more money the longer you own the stock. This is why time is one of the most important factors when it comes to investing. “Warren Buffett, who is the greatest investor of all time, has made some of his best and wisest investments by simply investing in American Express and Coca-Cola and owning them both for very long periods,” Lyles says.

The Risks of Investing in a Beauty Company

One of the best things about the beauty space can actually be one of the reasons why some people may hesitate to invest money into it: the world of beauty ca be very finicky. “So much of beauty is depended on trends and what is “in” at a particular moment in time – it can make trying to be confident the success of a company long-term a bit more challenging,” Lyles says. Still, he doesn’t believe that that should stop someone from investing into the space.

“If you believe that a specific beauty company will be sustainable over time, buy in to the company and keep your shares,” he says. “In 2019, it was great to have stock in beauty retailers because when the isolation restrictions were still in place, people wanted to look presentable on zoom, so they were still buying makeup.” The same thing is happening today – tweens are taking over Sephora with stories about interactions that people have with them going viral on TikTok seemingly everyday. Still, what some view as a major inconvenience, some see as an investment into a younger generation. If the people shopping at Sephora continues to skew younger, that means that there is a chance that their dollars will continue to allow the retailer to be profitable over the course of their (hopefully very long) lives. That’s a part of the risk that is investing, you may be very right or you may be dreadfully wrong about your assumptions of a company.

Investing can seem like a mystery, but approaching it from a place of genuine interest does help to take away some of the mystique. You also don’t have to embark on this journey alone – there are financial planners, lawyers, wealth planners, and a myriad of other people who specialize in this kind of work, so if you’re ready to start your journey into investing, there’s no time like the present. Investing in your love of beauty (via buying your favorite products or the stock market) sends a message about where your values lie. It’s the ultimate way to invest in yourself if you do it correctly, you may even get a monetary return at the end. Sounds like a win-win if you ask us.

Ariel Baker is the associate editor for PS Beauty. Her areas of expertise include celebrity news, beauty trends, and product reviews. She has additional bylines with Essence and Forbes Vetted.