Amidst Persisting Sales Growth, Should One Consider Investing in e.l.f. Beauty Shares?
It's been a wild ride for ELF Beauty (ELF) in 2024. The share price skyrocketed over 50% in the first half of the year, only to plummet over 50% a few months later. However, since the release of the Q2 fiscal 2025 earnings on Nov. 6, the stock has soared over 25%, with management again boosting their full-year guidance.
Let's delve into the recent financials and future prospects of this cosmetic company to determine if now is a good time to invest.
Sales remain robust
For the Q2 fiscal 2025, ending Sept. 30, ELF Beauty reported a 40% year-on-year increase in sales to $301.1 million, surpassing the analyst consensus of $286 million. Both retail and online sales were strong. The adjusted EPS, however, decreased from $0.82 to $0.77 but still beat the analyst estimate of $0.43. Adjusted EBITDA increased 9% to $146.8 million.
Despite these impressive numbers, the increased marketing and support costs impacted profitability. ELF Beauty did manage to increase its market share, climbing 195 basis points in the color cosmetics category to 12%, according to Nielsen. However, the growth in tracked channels (16%) was below the expected 20% due to category-wide weakness as customers become more selective with their spending.
The company continues to experience rapid international growth, with a 91% year-on-year revenue increase. ELF Beauty also entered the German market through Rossmann stores and became the No. 1 brand in stores entered.
Net sales
Revised guidance
$1.230 billion to $1.250 billion
ELF Beauty once again raised its full-year fiscal 2025 guidance, with sales now expected to rise 28% to 30%, up from the previous 25% to 27% projection.
$1.280 billion to $1.300 billion
| Metric | Original Fiscal 2025 Outlook | Prior Fiscal 2025 Outlook | Updated Fiscal 2025 Outlook || :------------- | :------------------------- | :------------------------ | :------------------------- || Net sales | $1.230 billion to $1.250 billion | $1.280 billion to $1.300 billion | $1.315 billion to $1.335 billion || Adjusted EBITDA | $285 million to $289 million | $297 million to $301 million | $304 million to $308 million || Adjusted EPS | $3.20 to $3.25 | $3.36 to $3.41 | $3.47 to $3.53 |
$1.315 billion to $1.335 billion
The company also revised their profitability forecasts with an adjusted EBITDA range now expected to be $304 million to $308 million and an adjusted EPS of $3.47 to $3.53.
Management believes their marketing leverage will improve during Q4, as spending is more balanced this year. There is no anticipated impact from potential tariffs on the current fiscal year. If tariffs do arise, ELF Beauty has handled such situations in the past while continuing to expand sales and market share.
Adjusted EBITDA
The company has the capability to seek supplier concessions and is able to adapt by increasing prices on 30% of its products. Approximately 80% of its products currently originate from China, offering opportunities to diversify its supply chain.
$285 million to $289 million
Should you buy ELF stock?
$297 million to $301 million
ELF has proven itself a standout in the consumer products sector with significant market share gains in the mass cosmetics category. The combination of more affordable products and the use of influencers to attract younger customers has helped ELF grow.
$304 million to $308 million
There are also opportunities for ELF to grow internationally and in the adjacent skincare category. ELF has seen early success internationally and acquired skincare brand Naturium in October 2023 to bolster its presence.
$3.47 to $3.53
ELF trades at a forward P/E ratio of 31 times based on fiscal 2026 estimates with a PEG ratio of just 0.6, which is typically considered undervalued. Growth stocks often have much higher PEG multiples.
Adjusted EPS
While there are concerns about potential tariffs, ELF has previously navigated such challenges while continuing to increase sales and market share.
$3.20 to $3.25
Given ELF's growth potential and attractive valuation, it seems like a good time to consider investing in the stock.
$3.36 to $3.41
Based on the robust sales and increased market share, ELF Beauty's management has raised their full-year fiscal 2025 guidance for net sales and adjusted EBITDA. Therefore, if you're interested in finance and investing, it might be worth considering putting your money into ELF stock, given its undervalued forward P/E ratio and growth potential.
