We came across a bullish thesis on e.l.f. Beauty, Inc. (ELF) on Twitter by Fierce__beast. In this article, we will summarize the bulls’ thesis on ELF. e.l.f. Beauty, Inc. (ELF)’s share was trading at $122.66 as of Nov 18th. ELF’s trailing and forward P/E were 66.30 and 39.53 respectively according to Yahoo Finance.
A photograph of a customer testing out different products in the skincare aisle at a store.
e.l.f. Beauty, founded in 2004, has transformed from a digitally native brand offering $1 cosmetics to a leading force in the beauty industry. The company went public in 2016 and has since expanded its product offerings, entered brick-and-mortar retail, and made strategic acquisitions. Notable milestones include the launch of e.l.f. SKIN in 2020, the acquisition of W3LL PEOPLE and Naturium, and the company’s international expansion. Originally positioned as a niche brand, e.l.f. has grown to become the #2 mass cosmetics brand in the U.S., known for its commitment to value, innovation, and digital marketing.
However, e.l.f.’s stock has faced significant volatility, dropping approximately 50% from its peak of $210 per share in June to around $100 by October. This decline was driven by several factors: weakening data trends, particularly in tracked channels; broader industry warnings about a slowdown in the cosmetics sector; and increasing short interest in the stock. By mid-July, short interest had surged, coinciding with the stock’s peak. Additionally, a $500 million share repurchase authorization was announced in late August, but this did little to halt the decline. Market concerns were further amplified by warnings from other cosmetics companies like COTY, and the stock continued to face significant volatility, as investor sentiment shifted between bearish and bullish outlooks.
Despite these short-term challenges, e.l.f.’s long-term fundamentals remain strong. Key growth drivers such as e-commerce expansion, international sales, and the acquisition of Naturium position the company for continued success. E-commerce, which currently accounts for 20% of total sales, has seen a year-over-year growth of 40%, and this trend is expected to continue. Additionally, e.l.f. has been gaining market share through its expanding presence in Walmart, and its international sales have surged by 90% year-over-year. The acquisition of Naturium also gives e.l.f. a strategic entry into the skincare market, which is twice the size of the color cosmetics sector, offering additional growth potential.
Financially, e.l.f. has shown strong performance, with its e-commerce and international segments expected to contribute significantly to future revenue growth. The international business currently represents 16% of total revenue and continues to grow rapidly. Furthermore, e.l.f.’s U.S. sales outside of tracked channels such as e-commerce and Ulta are often underappreciated, as scanner data may no longer serve as a reliable indicator of its U.S. performance due to the company’s diversification into non-tracked channels. Analysts have often underestimated the potential of these segments, and e.l.f.’s core U.S. business could outperform expectations.
From a valuation perspective, e.l.f.’s stock appears to be undervalued following the recent sell-off. The current price reflects a level of pessimism that may not align with the company’s long-term growth prospects. Based on the company’s future growth trajectory, a target price of $150 per share implies a 35% upside from current levels, with a valuation of 36x FY2026 owner’s earnings and a free cash flow yield of 3.6%. The stock’s recent decline may have priced in overly conservative estimates, making it an attractive entry point for long-term investors.
Investors should approach the stock with patience, recognizing that it may experience near-term volatility. However, the underlying business remains strong, and e.l.f.’s diversified sales channels, e-commerce momentum, Walmart expansion, and international growth make it well-positioned for potential outperformance. The company’s strategic initiatives, coupled with its ability to surprise the market with stronger-than-expected results, present a compelling investment opportunity.
e.l.f. Beauty, Inc. (ELF) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 40 hedge fund portfolios held ELF at the end of the second quarter which was 33 in the previous quarter. While we acknowledge the risk and potential of ELF as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ELF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.