Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes—just in case they’re material to our investing thesis.

What: Shares of Estee Lauder (NYSE: EL) look 13% prettier this morning, as the makeup maker announced fiscal-second-quarter profits fully 33% better than what it earned a year ago, and upped its forecast for fiscal 2012 by as much as $0.50.

So what: Fifty cents doesn't sound like a lot, but when you consider that the most EL was promising back in October was $3.10 per share, it makes for a 16% boost to the profits the company could pull down this year. Perhaps more importantly, Estee Lauder increased its lead over rival cosmetics firms such as Avon (NYSE: AVP) and Revlon (NYSE: REV) in the gross margins department, grossing 78.3% on each dollar of revenue last quarter, and strengthening its competitive position in the process.

Now what: So why am I not running out to buy shares of Estee Lauder? They're too expensive. Consider: At 35 times trailing earnings, EL sells for a huge premium to any of its competitors. For another, the further past the headlines I read, the less impressed I am with Estee Lauder's earnings report. Down on the cash flow statement, for example, we see that while reported profits are up 34% year-to-date, operating cash flow is down 18%, and actual free cash flow has plummeted 29%.

I won't invoke the "skin-deep" cliche against Estee Lauder's profits. But I will say this: They're less attractive than meets the eye -- especially at this price.

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Fool contributor Rich Smith does not own shares of, nor is he short, any company named above, but Procter & Gamble is a Motley Fool Income Investor selection. The Motley Fool has a disclosure policy.

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