Shares of the emerging cosmetics and skincare brand e.l.f. Beauty fell by 12% in the past week, as of 3:30 p.m. ET on Thursday, according to information from S&P Global Market Intelligence.
The decline in e.l.f. Beauty’s stock price comes after the company projected a sales growth of only 25% to 27% for 2025, a significant drop from the impressive 77% growth achieved in the previous year. This slowdown has raised concerns among investors about the company’s future growth trajectory.
Compounding these concerns, recent consumer goods data from SPINS and IRI highlighted that credit card spending growth for e.l.f. in the four weeks ending August 11 slowed to 18%, suggesting a potential ongoing deceleration.
Can e.l.f. Beauty justify its current valuation?
With its stock price having increased more than fivefold over the past three years, coupled with tripled sales, e.l.f. Beauty holds a high valuation at 72 times its earnings. This elevated valuation indicates that the market has significant growth expectations for the company, which explains the negative reaction to the recent credit card data.
To illustrate this price-to-earnings (P/E) ratio, e.l.f. Beauty would need to achieve 21% earnings growth annually for five years to match the S&P 500’s average P/E ratio of 27.
Nevertheless, e.l.f. Beauty might be justified in its anticipated growth.
A recent survey by Piper Sandler found that 38% of teenagers consider e.l.f. Beauty as the leading cosmetic brand, suggesting the company could have a long runway for growth. For perspective, the next four most popular brands collectively hold only 24% of the vote, emphasizing e.l.f.’s strong market position.
If e.l.f. Beauty can maintain its leading status among young consumers, as Piper Sandler predicts by reaffirming its buy rating, the company’s shares might recover. However, investors should be prepared for potential ongoing volatility.
