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E.l.f. Beauty: A Rising Star in the Cosmetics Industry
E.l.f. Beauty has carved out a unique space within the cosmetics industry, establishing a formidable brand presence. Over the past three years, the company has showcased remarkable growth and resilience, with its stock appreciating by 280%.
Here are three compelling reasons why e.l.f. Beauty remains a smart investment choice.
1. A Powerhouse of Growth
In a landscape where few non-tech companies can boast such impressive growth, e.l.f. Beauty stands out. Despite inflationary pressures, the company has maintained its momentum as a sales powerhouse, continually attracting a loyal customer base. It has successfully risen to the top as a leading mass brand, outshining traditional brands to capture consumer interest and spending.
The brand’s affordability consistently draws in shoppers, and it has become increasingly popular among those who typically indulge in luxury cosmetics but are seeking alternatives in today’s inflationary climate. However, e.l.f.’s branding resonates deeply across various demographics, making it appealing to a wide range of consumers even in more favorable economic conditions.
In its fiscal 2025 first quarter, ending June 30, e.l.f. reported a 50% year-over-year increase in sales and a 0.8 percentage point expansion in gross margin. Adjusted earnings per share (EPS) reached $1.10, prompting management to raise guidance across the board.
While the color cosmetics industry experienced a 1% decline, e.l.f. saw a 26% increase in sales, gaining 2.6 percentage points in market share as larger mass cosmetics brands struggled. In skincare, where the industry grew by 1.4%, e.l.f. soared by 45%. The company is strategically engaging with consumers online and leveraging robust e-commerce and wholesale channels to offer diverse shopping options.
Even if you’re unfamiliar with cosmetics, it’s clear that e.l.f.’s model of creating an exceptional product line and achieving profitability at scale is a winning strategy. Expect a virtuous cycle as e.l.f. continues to expand and solidify its brand.
2. Expanding International Horizons
E.l.f. currently operates in 14 countries outside the U.S., with additional reach through a global e-commerce distributor. International sales now constitute 16% of the total, having grown by 91% year over year in the first quarter. The potential for further growth is vast as the company ventures into new markets and launches products strategically.
Recently, e.l.f. commenced operations in Germany, partnering with 1,600 locations in its largest international launch to date. It is also entering Mexico through a collaboration with Sephora and expanding its footprint in the U.K., among other international rollouts.
E.l.f.’s global prospects are promising, evidenced by its rise from the No. 8 to the No. 4 mass cosmetics brand in the U.K., and from No. 6 to No. 4 in Canada. In the Netherlands, it holds the top position among mass makeup brands.
3. Attractive Valuation
Despite a stellar first quarter and an optimistic outlook, e.l.f.’s stock experienced a post-report decline, dropping 21% year to date. Investors’ expectations exceeded management’s guidance, with projected sales of $1.29 billion for the full year at the midpoint, compared to Wall Street’s average estimate of $1.32 billion. EPS estimates were $3.39, while analysts anticipated $3.52.
A slight deviation from analyst expectations isn’t a sufficient reason to sell, but the market may have realized e.l.f.’s stock was overvalued. With some gains already factored into the price, the stock couldn’t maintain an overly premium valuation.
Fortunately for investors, e.l.f.’s stock is now more attractively priced. Trading at 26 times forward one-year earnings, it presents an appealing opportunity for a high-growth company with significant prospects—a bargain not to be overlooked.
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*Stock Advisor returns as of 09/22/2024
