Barron’s: Buy e.l.f. Beauty on the dip with its 2x industry sales growth

Now may be a good time to buy shares of mid-cap cosmetics company e.l.f. Beauty, Barron's writes. The stock has fallen 40% from its 2024 peak, even though the company is generating sales at double the industry’s growth rate and beat earnings estimates in the second quarter for the seventh time in eight quarters.

Barron's sees an opportunity for investors to scoop up e.l.f. Beauty on the dip. The stock is off about 40% from its highs in early 2024, when it traded at over $217 per share.

Yet e.l.f. stands out from its competitors. It reported $353.7 million of fiscal-first-quarter sales for the period ended June 30, for 9% year-over-year growth, about double the industry’s growth rate, Barron's points out. For context, Coty, the parent company of Kylie Cosmetics, Sally Hansen, and others, has reported an 8% drop in revenue to $1.25 billion in its most recent quarterly report. 

The company, Barron's writes, is reaching its cohort of customers the right way – by marketing on social media, selling online, and selling in select retail locations. The fact that it’s still relatively small should help it grow faster than its larger peers, particularly as it expands globally. Its position as a steep discounter in the beauty business gives it wiggle room to increase prices to protect its profit margins from tariff costs and still be a discounter.  

At the same time, Barron's notes the negative aspects in the financials. For example, e.l.f.’s gross margin dropped to 69.1% in the fiscal first quarter, from 70.8% in the same period last year, as tariffs increased costs for the materials that make up the products, which the company imports from China.

The company's shares have 15 "buy" ratings from Wall Street analysts versus only three "hold" recommendations, MarketWatch data shows.

“We rate ELF Buy as we believe it is a structural growth story driven by innovation, captivating marketing… as well as the international and skincare growth opportunities,” writes TD Cowen analyst Oliver Chen, as quoted by Barron's.

Deutsche Bank analyst Stephen Powers concludes that growth could hit 20% or more during the second quarter as e.l.f. gets a boost from its acquisition of Hailey Bieber’s Rhode, a deal announced in May and closed in early August.   

Meanwhile, e.l.f. has implemented a previously announced $1 increase on some of its products on August 1, Barron's writes. E.l.f. did not speak of any resulting decline to demand from the increases and promised its products would remain cheaper than the competition, with three quarters of its offerings below $10.

“We’re optimistic [the impact] will be limited from the recent $1 price hike, which, along with strong unit momentum, should boost sales,” writes Jefferies analyst Ashley Helgans, who has a "buy" rating, as quoted by Barron's.

The AI translation of this story was reviewed by a human editor.