e.l.f. Beauty Stock Dropped 35% – Have You Assessed the Risk

e.l.f. Beauty (ELF) stock is down 35.0% in a day. The stock looks fairly priced at the moment, though history suggests you may benefit from buying dips. Consider the following data:

• Size: e.l.f. Beauty is a $4.3 Bil company with $1.3 Bil in revenue currently trading at $76.54.
• Fundamentals: Last 12 month revenue growth of 18.6% and operating margin of 11.6%.
• Liquidity: Has Debt to Equity ratio of 0.07 and Cash to Assets ratio of 0.13
• Valuation: e.l.f. Beauty stock is currently trading at P/E multiple of 44.1 and P/EBIT multiple of 26.7
• Has returned (median) 47.6% within a year following sharp dips since 2010. See ELF Dip Buy Analysis.

While we like to buy dips if the fundamentals check out – for ELF, see Buy or Sell ELF Stock – we are wary of falling knives. Specifically, it is worth trying to answer if things get really bad, and ELF drops another 20-30% to $54 levels, will we be able to hold on to the stock? What is the worst case scenario? We call it downturn resilience. Turns out, the stock has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

A single stock can be risky, but there is a huge value to a broader, diversified approach. If you seek an upside with less volatility than holding an individual stock, consider the Trefis High Quality Portfolio (HQ). HQ has outperformed its benchmark — a combination of S&P 500, Russell, and S&P midcap index — and achieved returns exceeding 91% since its inception. Risk management is key — consider what the long-term portfolio performance could be if you blended 10% commodities, 10% gold, and 2% crypto with HQ’s performance metrics.

Below are the details, but before that, as a quick background: ELF provides cosmetic and skin care products through national and international retailers, direct-to-consumer channels, and e-commerce platforms in the U.S. and distributors internationally.

2022 Inflation Shock

• ELF stock fell 36.6% from a high of $33.21 on 31 December 2021 to $21.05 on 24 May 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 20 July 2022
• Since then, the stock increased to a high of $218.00 on 27 June 2024 , and currently trades at $76.54

 
2020 Covid Pandemic

• ELF stock fell 59.0% from a high of $19.84 on 13 February 2020 to $8.13 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 8 July 2020

 
2018 Correction

• ELF stock fell 75.4% from a high of $29.64 on 6 January 2017 to $7.30 on 27 February 2019 vs. a peak-to-trough decline of 19.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 16 April 2021

 
It is a good thing to keep in mind how low ELF could go during a downturn. And you should also check how the stock fared when compared with the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 — the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.