By Teresa Rivas

Trying to be bullish on the beauty industry recently has often felt like putting lipstick on a pig, and that may not change any time soon.

A look at the global beauty industry in the past few years doesn't paint a pretty picture. Covid-era closures left people with little need for makeup and the postpandemic pop didn't last, inflation restricted purchases, and double-digit demand in China is a relic of the 2010s.

So while U.S.-centric brands like e.l.f. Beauty and Ulta Beauty have thrived in the past half decade, more global-oriented ones like Estée Lauder, L'Oréal, Coty haven't kept pace, and in some regions have been losing market share to local domestic brands. Digitally native brands and increasingly online sales have further upended the selling model for companies that previously thrived on in-person trials.

The upshot is that beauty industry growth is now hovering below its long-term average of 4% to 5%, notes HSBC analyst Jeremy Fialko in his latest overview of the sector. China looks unlikely to return to its heyday any time soon -- ditto for South Korea -- and other large emerging markets like India still aren't moving the needle much on a global scale. In the U.S. volatile consumer sentiment and lingering uncertainties around tariffs are also worries.

In short, while the period of strong selling may be over, there's not much in the way of catalysts.

"This points to ongoing growth at or slightly below the low end of historical ranges albeit, in an offer-driven industry, there will always be scope for individual companies to succeed," he writes.

Here's where stockpickers can shine. And Failko thinks it's finally time to reconsider Estée Lauder, one of the group's worst performers since 2020.

It's true that sales might not meaningfully increase near term, but the company's recovery plan has at least kept margins steady, and there are signs that its businesses in key countries like the U.S., China, and Japan are gaining share. That leads him to believe that it can more than double earnings per share between fiscal 2025 and fiscal 2027, and he reiterated a Buy rating on the stock while upping his price target to $105 from $99.

Fialko also has a Buy rating on Coppertone and Eucerin owner Beiersdorf as it leans into skin care -- an area that many consumers took up during the pandemic, often replacing makeup. Next year should bring the launch of its antiaging Epicelline molecule products in China, and should bring the company's entry into the acne treatment market with the S-Biomedic products, which focus on skin's mircobiome. He has a EUR135 on the German-listed stock, while American depositary shares trade under the symbol BDRFY.

South Korean Amorepacific doesn't have U.S. listed shares but is one of his favorite ways to play the increasing popularity of K-Beauty brands in the U.S.

By contrast, Fialko is still sidelined on the more familiar name and industry leader L'Oréal. Both the European shares and ADRs have outperformed this year, and he's concerned that the continuing headwinds for beauty will make it difficult for it to keep climbing.

We've all heard that beauty is only skin deep. But finding winners in an industry still trying to find its footing may take some digging.

Write to Teresa Rivas at teresa.rivas@barrons.com

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September 17, 2025 13:50 ET (17:50 GMT)

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