Three compelling reasons to invest in e.l.f. shares without delay.
ELF Beauty (ELF) (-0.33%) has outperformed the market significantly over the past three years, gaining a staggering 232% compared to the S&P 500's modest 32% growth. Despite underperforming this year with a 28% drop in share price, ELF still outshines the broader market's 26% rise.
Why the sudden drop in popularity for ELF? It's largely attributed to temporary factors. Investors should disregard the hype and focus on the substantial long-term potential. Here are three compelling reasons why ELF stock appears to be a worthwhile investment at the moment.
1. Customers can't get enough of it
ELF has developed a powerful brand that's captivating customers. It emphasizes social media, sustainability, and advocating for a cause that aspires to "be a daring disrupter with a compassionate heart."
As evidence, ELF recently released an impact report, boasting that it is the only U.S. public company with a board that is over 78% female and 44% diverse. These values resonate with the youthful customer base ELF is targeting, and they are enthusiastically embracing the brand.
ELF markets itself as a budget-friendly alternative, offering "dupes" of high-end brands at a fraction of the price. Unlike other companies, ELF proudly celebrates its ability to provide quality products at an affordable price point. The average cost of an ELF product is $6.50, compared to $9.50 for other mass-market brands and over $20 for luxury brands.
This strategy has significantly contributed to ELF's success in the face of inflation, as people opt for more affordable options.
The sales figures are impressive. ELF reported a 40% increase in sales in the second quarter of fiscal 2025 (ending Sept. 30), marking its lowest year-over-year increase in eight quarters. Gross margins expanded 0.4 percentage points to 71%, and adjusted earnings per share (EPS) reached $0.77, surpassing Wall Street expectations of $0.43. Management raised its full-year guidance, now projecting a 29% year-over-year sales increase and EPS of $3.50.
ELF's stock price dropped this year following lower earnings reports. The company is reinvesting its profits into marketing efforts and a recent acquisition for its skincare line. The market typically exhibits caution when a company appears to be pouring too much money back into the business to boost sales. However, the stock jumped after the impressive report, yet it still remains down for the year.
2. It's only going to get better
ELF's slip in 2024 appears to be based on short-term thinking. This is a game-changing brand that's revolutionizing the cosmetics industry, and its growth trajectory is far from reaching its peak. ELF is a dominant force across different age groups and has been successfully capturing market share across various demographics. The color cosmetics industry saw a 5% decline in the second quarter, while ELF sales increased by 13%, making it the leading brand in unit share.
ELF is the premier brand at major retailers like Target, Walmart, Ulta Beauty, and several others. Both Target and Walgreens are planning to expand ELF's shelf space in the coming months.
ELF's membership program is also expanding, with membership growing 30% year over year in the second quarter to 5.3 million. Members tend to buy more frequently, place larger orders, and have higher customer retention rates. They are also a valuable source of data for accurate merchandising and innovation.
The brand's international growth is surging, with market penetration outside the U.S. rising from 16% to 21% in the second quarter. International sales boomed 91% compared to the previous year. ELF continues to establish new partnerships in international markets, with its brand already dominating the charts in some of its international locations, such as Rossmann stores in Germany and Douglas stores in Italy.
3. The value is unbeatable
ELF stock became overpriced before its 2024 dip, but it now appears to be a bargain even with post-earnings growth. The stock trades at a forward-one-year P/E ratio of 24, below its three- and five-year averages. ELF is likely to bounce back strongly and outperform the market over the next few years. Now is the ideal time to purchase.
In light of ELF's financial performance and strategic growth, investing in the company's stock could yield significant returns in the future. With a budget-friendly pricing strategy, strong brand appeal, and strategic partnerships, ELF is well-positioned to continue outperforming the market in the finance sector.
Moreover, ELF's focus on sustainability, social media, and affordable luxury aligns with consumer preferences, making it an attractive investment opportunity for those looking to invest money wisely in the finance industry.
