Deep dive into L'Oreal (EPA: $OR)
From Hair Dye to Global Domination
1.0 Introduction
What if I told you that the world’s biggest beauty company started with a kitchen experiment and a chemist? That its founder wasn’t just a scientist but also a marketing genius and a political extremist?
From Nazi ties and secret Resistance support to AI-driven personalized skincare and billion-dollar acquisitions, L’Oréal’s journey is anything but ordinary.
2.0 History
2.1 Early beginnings (1909 - 1950s)
In the early 1900s, hair dye was a total mess. You never really knew what you would get—it could range from a burnt scalp to a color that was not what you wanted. Hairdressers struggled to find a product they could trust, and women who wanted to change their look had to take their chances.
Then came Eugène Schueller, a young French chemist who saw this disaster and thought, "I can fix this." He worked in his tiny Paris apartment, mixing formulas and testing dyes until he created something revolutionary: a safe, reliable hair dye that worked. He called it Oréale, and hairdressers loved it.
But Schueller wasn’t just a scientist—he was a hustler. Instead of waiting for customers to visit him, he hit the streets, personally visiting salons and showing them how his product worked. By 1909, his little operation had become a full-fledged company named L’Oréal.
Once L’Oréal was up and running, Schueller didn’t stop at hair dye. He expanded into shampoos, styling treatments, and even skincare, always looking for the next big thing. In the 1930s, he launched Ambre Solaire, one of the first commercial sunscreens, just as sunbathing became popular.
But his real genius was marketing. Before branding was an industry, Schueller crafted eye-catching ads and catchy slogans, making beauty more than just products—it was about confidence and self-expression.
2.x The Dark Side
However, there’s a dark side as well. Beyond his beauty empire, Eugène Schueller was deeply involved with La Cagoule, a violent, far-right, anti-communist group in 1930s France. He even hosted their meetings at L’Oréal’s headquarters. Schueller opposed socialist policies like the five-day workweek and paid vacations. Ironically, those vacations boosted sales of L’Oréal’s sunscreen as more French citizens hit the beaches.
During World War II, his ties to the Nazi-aligned Vichy government helped L’Oréal’s sales quadruple, and he was linked to SS officer Helmut Knochen, responsible for deporting French Jews.
After the war, he was accused of collaboration but avoided major consequences by claiming to have secretly supported the Resistance. Future French president François Mitterrand and Schueller’s son-in-law, André Bettencourt, helped clear his name. Still, he controversially hired many former La Cagoule members at L’Oréal, leaving a troubling legacy behind his business success.
2.2 Expansion & Globalization (1950s - 1990s)
After Schueller’s death (1957), François Dalle took over and drove L’Oréal’s global expansion, acquiring brands and pushing into new markets.
Under his leadership, subsidiaries were established across Europe, the U.S., and Asia. In addition, instead of relying solely on in-house brands, the company started acquiring well-established names to quickly gain market share in new regions.
Lancôme was acquired, marking a move into the luxury segment.
A defining moment came in 1971, when the company launched its iconic slogan: “Because You’re Worth It.” It was one of the first ad campaigns to focus on women’s empowerment rather than just beauty.
Two notable acquisitions that followed were:
Redken (1993) - for professional haircare
Maybelline (1996) - to dominate mass-market cosmetics
In the 1990s, what used to be a Parisian hair dye company turned into the world’s largest beauty company.
2.3 Dominating the Beauty Industry (1990s - Present)
However, its next challenge was to stay ahead in a digital and tech-driven world. The acquisitions didn’t stop.
Over the last decades, the company has invested heavily in Artificial Intelligence, Augmented Reality, and Personalized Beauty.
The company spends over €1 billion on research and development, more than the annual revenue of most beauty companies.
This allowed L’Oreal to pioneer customized skincare solutions, launching products like La Roche-Posay’s AI-powered skin analysis.
Lastly, the rise of e-commerce and social media has greatly impacted its strategy, and the company has successfully pivoted. It became a leader in direct-to-consumer beauty, leveraging social media platforms such as TikTok, YouTube, and Instagram.
Because of this, L’Oreal has over 35 brands and operations in over 150 countries.
Here’s a fun fact: L’Oreal collaborated with NASA to study how skin ages in microgravity.
3.0 Ownership
L’Oreal is considered a family-owned company.
Liliane Henriette Charlette Bettencourt was the only child of Eugene Schueller and married Andre Bettencourt. At the time of her death (in 2017), she was the 14th richest person.
Her fortune was passed down to her daughter Françoise Bettencourt Meyers, who is not only the richest woman in the world today but also the first woman with a net worth above $100 billion.
It is worth noting that Nestle is a significant shareholder, too.
4.0 The L’Oreal of today (and its competition)
L’Oréal’s strong family ownership has helped ensure stability, but its real power comes from its broad portfolio and category dominance.
All the acquisitions combined with high R&D spending allowed the company to create a broad portfolio divided into four categories, with plenty of strong brands.
Here’s another fun fact: A L’Oreal product is sold every second somewhere in the world.
The revenue split continues to evolve, and “Dermatological Beauty” now accounts for 16% of the total revenue. Why is this important?
Because that growing segment has the highest operating margin (24% vs. 19% for the other categories).
L’Oreal doesn’t just operate across various product categories but also all geographic and price ranges, resulting in a broad competitive landscape competing against:
P&G
Unilever
Shiseido
LVMH
Chanel
Estee Lauder
Hugo Boss
Kering
Johnson & Johnson
The list goes on.
What I find most impressive is the company’s pricing power.
Regardless of the competition and economic environment, all cost increases have been passed on to the final customers. Its operating margin stands at an incredible 20%.
Over 30% of its revenue is spent on advertising and promotion, making L’Oreal one of the world's five largest advertisers. The company works with celebrities like Cara Delevingne, Naomi King, Alia Bhatt, and Camila Cabello.
5.0 Capital allocation
The charts above clearly show that this is a cash-flow machine. So, it is fair to ask: What does management do with all the excess cash?
5.1 Dividends
Between 50% and 60% of the net profit is paid out as dividends. The dividend yield is close to 2% based on today's share price.
5.2 Acquisitions
Acquisitions are part of L’Oreal’s DNA. One thing is for sure, given its history, one can expect acquisitions moving forward.
5.3 Share buybacks
In 2021, the company spent ~€10 billion on share repurchases, reducing the number of outstanding shares by ~4%. Outside of 2021, the company spends ~€0.5 billion on buying back shares. This is insignificant given its market cap of over €180 billion and is likely to compensate for the impact of share-based compensation.
6.0 Valuation
Now, the fun part - How much is L’Oreal worth?
Given its pricing power, I assume the following:
The revenue will grow slightly above the inflation rate as it will eventually acquire another company;
The operating margin remains stable over time, at 20%, and
Given its pricing power, the company deserves a premium over other companies. I incorporate this by giving it a lower discount rate of 9%.
Here’s the DCF model:
Based on my input, the company’s fair value is €144 billion (€269/share), slightly above today’s share price of €341.
This doesn’t surprise me, as some investors (institutional and retail) are willing to pay a higher premium for (relatively) safe and predictable cash flows.
While L’Oréal’s steady growth may already be priced in, a bull case could emerge if AI-driven personalization, luxury beauty, and skincare expansion drive revenue beyond expectations.
On the other side, a bear case would involve:
Further increase in competition, combined with influencer marketing;
US-China-Europe trade tensions that could impact the supply chain;
L’Oreal is a giant that may be too big to move fast if needed.
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My fair price is at exactly the same price. Happy to see that my calculations probably make sense.