Shares of e.l.f. Beauty (NYSE: ELF) have been on a roller-coaster ride in 2024, soaring early in the year only to lose half their value from the highs reached earlier this year. The stock is currently down more than 25% on the year.
Nonetheless, the company stands out as one of the strongest growth stocks in the competitive consumer staples domain, witnessing a remarkable 50% surge in revenue last quarter. Let’s delve into the reasons why seizing the opportunity to invest in this growth stock during its downturn could be advantageous.
The Triumph of Market Share
e.l.f. has made seismic waves in the mass-market cosmetic industry. By adopting a fast-follower strategy akin to the apparel sector, the company has introduced affordable versions of popular prestige cosmetic products. A significant aspect of its triumph arises from its savvy marketing tactics.
Early on, e.l.f. embraced social media and influencers, harnessing platforms like TikTok and Meta Platforms’ Instagram as its primary marketing channels. Noteworthy is its collaboration with a multitude of micro-influencers to build a larger community. Additionally, the company ventured into traditional advertising avenues such as Super Bowl ads and brand partnerships while exploring cutting-edge marketing channels like real-world commerce in the virtual realm of Roblox.
e.l.f. has continually expanded its market share for 22 consecutive quarters, solidifying its position as the second-largest color cosmetics brand in the U.S. with a 12.3% market share last quarter. This growth has been fueled not only by innovative product offerings and strategic marketing but also by securing prominent retail space in stores like Target and Walmart, now clinching the top spot as the leading cosmetic brand at Target with a 21.4% market share last quarter.
Unveiling Growth Opportunities
Despite e.l.f.’s success in the U.S. color cosmetic segment, the company harbors substantial growth avenues, particularly in skincare and international markets. Transitioning its successful playbook from cosmetics to skincare, e.l.f. observed a remarkable 45% growth in the category in Q2, capturing an additional 60 basis points of market share.
While currently ranked ninth in the mass-market skincare arena with a modest 2% market share, e.l.f. eyes significant room for expansion, recently bolstering its skincare lineup through the acquisition of the Naturium brand. With a slightly higher price point than e.l.f., Naturium complements the e.l.f. skin brand and is now available through major retailers like Target, Amazon, and recently, Ulta Beauty.
Furthermore, international markets present a substantial growth opportunity for e.l.f. Marking a 91% surge in international revenue last quarter, the company has secured a loyal following, attaining the leading position in Italy and the Netherlands and ranking fourth in the U.K. and Canada. Despite these achievements, e.l.f.’s international reach remains at 16%, signaling ample potential for expansion into new territories.
Image source: Getty Images.
The Price of Success
e.l.f.’s recent stock price decline stems partly from its remarkable past achievements. With an exceptional 77% revenue growth surpassing its initial prognostications of 22% to 24% last year, and a subsequent raise in guidance to 25% to 27% after Q1, investors anticipated similar extraordinary results. However, the stock’s appealing valuation following the downturn, coupled with promising skincare and international expansion prospects, makes it an attractive investment option.
Currently trading at a forward price-to-earnings ratio of 25 times fiscal year 2026 analyst estimates and a price/earnings-to-growth ratio of merely 0.5 times, e.l.f. presents an enticing opportunity. A PEG ratio below 1 is typically deemed undervalued, whereas growth stocks often command multiples exceeding 1.
ELF PE Ratio (Forward 1y) data by YCharts. PE Ratio = price-to-earnings ratio. PEG Ratio = price/earnings-to-growth ratio.
e.l.f. Beauty, a growth stock currently residing in the bargain bin post-selloff, maintains a robust growth trajectory and comprises substantial growth opportunities. Hence, considering its current valuation, investing in this stock appears prudent.
Is e.l.f. Beauty a $1,000 Investment Opportunity?
Before delving into an investment of $1,000 in e.l.f. Beauty, it is imperative to weigh the fundamental aspects that underpin your investment strategy and financial goals.
Unlocking Beauty Wealth: A Closer Look at e.l.f. Beauty’s Prospects
With the bells of opportunity ringing out, investors eyeing e.l.f. Beauty have witnessed the sizzling rise of this cosmetic titan. Yet amidst the cacophony of success stories, a murmur of uncertainty looms. Let’s dissect the numbers and unravel the tapestry of beauty amidst the intricacies of investment prowess.
The Tale of Reckoning
As per the Motley Fool Stock Advisor, e.l.f. Beauty found itself absent from the coveted list of the 10 best stocks for future financial glory. A blemish on an otherwise radiant history, this exclusion raises eyebrows. Allegedly, these lauded 10 could sprout into giants, rendering e.l.f. Beauty a footnote in the epic saga of corporate conquest.
A Glimpse of History
A flashback to the rise of Nvidia in 2005 serves as a lantern in this tumultuous tunnel. A paltry $1,000 planted in the fertile soil of foresight back then would have burgeoned into a jaw-dropping $765,523*. The shadow of missed opportunities lingers, whispering tales of fortunes that slipped through the fingers of the unassuming.
The Stock Advisor Legacy
Guiding investors as a shepherd does to lost sheep, the Stock Advisor offers a roadmap to financial bliss. With promises of portfolio nirvana, regular analyst updates, and monthly stock revelations, this oracle of finance boasts a track record that eclipses the S&P 500 fourfold since its inception in the quagmires of 2002*.
While the spotlight shines on e.l.f. Beauty, the murmurs of potential are deafening. Investors gaze upon the horizon, seeking signs of an impending boom or bust. The whispers of financial prophecy intertwine with the beauty of possibility, creating a canvas waiting to be painted with the hues of monetary success.
*Stock Advisor returns as of September 30, 2024
