What Is a Better Investment Right Now: Olaplex or L'Oreal?
These two companies have been locked in litigation over patent infringement, but which is the better investment now: Olaplex or L'Oreal?
Oct. 18, 2021

Olaplex (NASDAQ: OLPX) went public two weeks ago on the strength of its products designed to repair damaged, over-colored hair. L'Oreal (OTCMKTS: LRLCY) has been around for over 100 years and was recently the defendant in a patent infringement lawsuit by the younger company; it lost and filed for an appeal, which it won and the judgment was reversed. Amidst all this drama, which stock is the better investment right now: Olaplex or L'Oreal?

Olaplex: the bulls and the bears

Olaplex has a powerful moat in its scientifically-backed products; in fact, it holds over 100 patents in the hair care field. Initially only selling to salons and professionals, the company now has a retail channel for direct-to-consumer business. People are taking notice and according to the company's latest quarterly report (Q2 2021), net sales are up over 175% and net income surged over 2,300% year-over-year (YoY). 

The company's products, which target the hair follicle bond, have strong consumer loyalty, but more importantly, they also have a strong professional following to help drive business. Additionally, Olaplex has a strong social media presence, where it secured many more followers on TikTok and Instagram than competitors. And yes, the company is profitable. 

However, Olaplex is young and doesn't have as much money as competitors and that leaves it open to attacks by Goliaths like L'Oreal. In fact, L'Oreal got its hands on Olaplex's trade secrets by tempting the company with a buy-out and during this transaction peeked inside the cookie jar. Competitors like this, with deep pockets, and more business experience, are a threat.

L'Oreal: The bulls and the bears

In H1 2021, L'Oreal reported a 16.2% increase in sales, an 18.4% rise in gross profit, and a 26.8% growth in operating profit, not to mention double-digit like-for-like growth in three out of its four divisions, year-to-date (YTD). The company pays a dividend of EUR4 ($5.48) and its stock price has climbed over 20%, YTD. L'Oreal is the world's largest cosmetics company and has brands like Maybelline, Lancome, and Urban Decay in its portfolio of nearly 40 hugely popular lines. 

Being such a titan in the field has its downsides particularly in the ethics category. The company gets poor marks for animal testing, having operations in countries with oppressive regimes, and neglecting to eliminate environmentally toxic ingredients from their products, according to Ethical Consumer.

So, which stock is a better buy right now?

Regardless of our policy not to suggest companies without at least two earnings reports, L'Oreal is still clearly the long-term play here. This formidable organization has a wide array of popular brands and will likely continue to acquire more (Olaplex was a candidate at one point). Further, I reckon it won't be long before L'Oreal develops its own line of follicle-bond treatment products. It might seem expensive, edging in at $400, but this is a company that has historically outperformed the market in growth and will likely continue to do so.

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