Buy or Sell e.l.f. Beauty Stock?

e.l.f. Beauty (ELF) stock has fallen 11% during the past day, and is currently trading at $81.64. We believe there is not much to fear in ELF stock given its overall Strong operating performance and financial condition. This is aligned with the stock’s High valuation because of which we think it is Fairly Priced.

Below is our assessment:

Don’t get too attached to ELF stock, even if you love it. Stocks crash. High Quality Portfolio lets you navigate that risk.

Let’s get into details of each of the assessed factors but before that, for quick background: With $4.8 Bil in market cap, e.l.f. Beauty provides cosmetic and skincare products through national and international retailers, direct-to-consumer channels, and e-commerce platforms in the United States, with international distribution mainly via distributors.

[1] Valuation Looks High

This table highlights how ELF is valued vs broader market. For more details see: ELF Valuation Ratios

[2] Growth Is Very Strong

• e.l.f. Beauty has seen its top line grow at an average rate of 47.4% over the last 3 years
• Its revenues have grown 17% from $1.3 Bil to $1.5 Bil in the last 12 months
• Also, its quarterly revenues grew 37.8% to $490 Mil in the most recent quarter from $355 Mil a year ago.

This table highlights how ELF is growing vs broader market. For more details see: ELF Revenue Comparison

[3] Profitability Appears Moderate

• ELF last 12 month operating income was $168 Mil representing operating margin of 11.1%
• With cash flow margin of 16.2%, it generated nearly $246 Mil in operating cash flow over this period
• For the same period, ELF generated nearly $104 Mil in net income, suggesting net margin of about 6.8%

This table highlights how ELF profitability vs broader market. For more details see: ELF Operating Income Comparison

[4] Financial Stability Looks Strong

• ELF Debt was $926 Mil at the end of the most recent quarter, while its current Market Cap is $4.8 Bil. This implies Debt-to-Equity Ratio of 19.0%
• ELF Cash (including cash equivalents) makes up $197 Mil of $2.3 Bil in total Assets. This yields a Cash-to-Assets Ratio of 8.5%

[5] Downturn Resilience Is Moderate

ELF saw an impact slightly better 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.

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 $81.64

 
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

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read ELF Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

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.