The narrative surrounding Estée Lauder (EL 0.47%) is (still) quite bearish. Share prices were already down 57% from their late-2021 peak headed into Friday morning's release of its fiscal fourth-quarter results. Disappointing guidance pushed it slightly deeper into a new 52-week low territory.

In short, things seem bleak for the cosmetics powerhouse.

As the old adage goes, though, it's always darkest before the dawn. Dawn may already be here for Estée Lauder. Investors either just aren't seeing it or are too afraid to step into a stock that may still be in a freefall. However, that is often a prime time to be a buyer. This instance is no exception.

China is the problem, there and elsewhere

Its Q4 results aren't the issue. Lauder's sales of $3.61 billion are a hair better than the year-ago comparison of $3.56 billion and soundly beat estimates of $3.47 billion. The per-share loss of $0.09 is worse than the expected loss of $0.03 per share and well down from the profit of $0.14 per share booked in the comparable quarter a year earlier.

But the loss and earnings miss aren't sweeping concerns in and of themselves. Investors and analysts alike knew the bottom-line figure -- usually on the order of a profit of $0.50 per share in its fiscal fourth quarters prior to the pandemic -- was going to be tricky to predict this time around. After all, the world's dealing with highly unusual economic circumstances.

Revenue and earnings guidance, though, are a different story. Estée Lauder is calling for top-line growth of between just 5% and 7% versus estimates of 8.8% this year. At the same time, the company's fiscal 2024 earnings forecast of between $3.50 and $3.75 per share is significantly short of the consensus forecast of $4.83 per share.

It looks like weakness within China and from Chinese consumers traveling outside of their home country continue to be the core problem. It's enough of a problem for CEO Fabrizio Freda to make a point of saying, "In Asia travel retail, we are taking actions to capture demand from the returning individual travelers and continuing to reduce inventories in the trade as we navigate the current market headwinds." What's largely being overlooked is that these headwinds are already abating.

Signs of life for Estée Lauder

Don't misread the message. Things could be better in and around China and, for that matter, everywhere else. While sales were soft in the Americas, revenue from Africa, the Middle East, and Europe was down 19% year over year during the 12-month stretch ending in June (albeit largely because tourism travel to and around those areas remains tepid).

Chart comparing Estee Lauder's historical revenue by major geographical region.

Data source: The Estee Lauder Companies. Chart by author.

Meanwhile, China's domestic consumerism seemingly remains crimped. July's retail sales growth of 2.5% was slowed from June's growth of 3.1%, falling considerably short of the expected 4.5% growth for last month's retail spending. Cosmetics sales in China fell 4.1% year over year in July, with many consumers opting for lower-cost brands.

As was said, the picture looks bleak. There are some encouraging developments, however, that bode well for Estée Lauder.

One of them is a data nugget from a recent survey of Chinese consumers performed by Morning Consult. The poll suggests 52% of Chinese adults are interested in traveling abroad this year versus only 28% at this point in 2022. And most of them are specifically setting their sights on the Middle East and Europe, where Estée Lauder's business faces its most serious slumps.

Investors should also note that while demand from Chinese tourists has been tepid because outbound travel from China has been subpar, that's not necessarily the hint of stifled spending it seems to be. The country had largely limited outbound group travel to popular overseas destinations. That changed earlier this month, with China's Culture and Tourism Ministry lifting bans on group tourism trips to more than 70 locations, including destinations in Europe and the Middle East.

Even in-country travel is showing signs of strengthening, hinting that China's consumers may feel more confident than it seems. Marriott's Q2 revenue per room in greater China was up 125% versus Q2 of last year, pointing to soaring demand from mostly local travelers but also from a few foreign tourists.

The point is, while they're still not buying Estée Lauder cosmetics quite as briskly as in the past, Chinese consumers aren't exactly holing up in their homes. If the world can sidestep a recession -- as increasingly seems will be the case -- don't be surprised to see these consumers ease back into their old spending habits sooner than later.

Yes, buy Estée Lauder stock at this low

So why isn't any of this hope being reflected in Estée Lauder stock's price? The pessimism is understandable. The company isn't exactly firing on all cylinders, after all, and no one should simply ignore the economic red flags that are still clearly waving.

The market, however, is pricing in every worst-possible-case scenario for Estée Lauder ... and then some. Even the analysts who aren't exactly bullish on the stock think it's priced as low as it deserves to be. That is to say, at its current price near $160.50, it's essentially trading at the lowest of all analysts' target prices.

There's little to no arguable downside left to price in. Indeed, versus its consensus target price of $212.09, shares of beleaguered Estée Lauder are arguably undervalued by 32%. These same analysts also foresee rekindled sales and earnings growth beyond next year, suggesting conditions in China -- and elsewhere -- will be better sooner or later.

Chart showing the past and projected revenue and earnings growth for Estee Lauder.

Data source: StockAnalysis.com. Chart by author.

It's still not an easy stock to own, mind you. Volatility is sure to remain in the cards for a while.

If you can stomach that volatility for the long haul, though, Estée Lauder's shares are a buy in the shadow of their halving since early 2022. This cosmetics company is too prolific and too competitive for its stock to remain suppressed for very long.