Table of Contents
- Company Profile - U.S. Cosmetics Manufacturer and Distributor
- The last e.l.f. Beauty quarterly figures from March 2024
- e.l.f. Beauty share forecast 2024/2025
- Important key figures of the e.l.f. Beauty share from the HGI analysis
- Valuation of the e.l.f. Beauty share
- Conclusion on the e.l.f. Beauty share
The e.l. f. Beauty share(ISIN: US26856L1035) may not be familiar to every investor, but the company has positioned itself as the market leader in the low-price segment of the US cosmetics industry in record time. A sales focus on Generation Z and innovative products that take modern ethical issues into account form the basis of its success.
In addition, the company has recently fired the turbo with its international expansion in order to establish its affordable yet high-quality products worldwide. The high growth of e.l.f. Beauty, which continues to provide positive surprises.
The share price has also reacted strongly. Over the last ten years, the e.l.f. Beauty share price has increased eightfold. Over one year, it has doubled.
However, anyone who observes the share price closely will notice that volatility is increasing. In particular, the high valuation (P/E ratio of over 70) and an expected significant slowdown in growth in the current year have caused nervousness.
Despite the high valuation, e.l.f. Beauty could still represent an attractive investment opportunity if it succeeds in fully exploiting the global market potential. The combination of affordable prices, ethically responsible products and a strong digital presence strikes a chord with the times and no other company currently understands the market as well as e.l.f. Beauty. If the coup succeeds, the Californian company could quickly move into completely new sales dimensions and join the league of the world's largest cosmetics manufacturers.
However, there is still a long way to go before this happens, and there may be many obstacles along the way. The e.l.f. Beauty share analysis.
The most important facts in brief
- e.l.f. Beauty is a US cosmetics manufacturer, the market leader in the low-price segment
- The target group is Gen Z, international expansion has been initiated
- The high growth is astonishing. However, it should slow down considerably in the current year
- The valuation appears correspondingly high with a P/E ratio of over 70
Company profile - U.S. cosmetics manufacturer and distributor
e.l.f. Beauty is both an American manufacturer and distributor of hip and trendy cosmetic products. The abbreviation e.l.f. is synonymous with Eyes, Lips, Face and describes the core focus of the products quite well. The New York-based company pursues a business model that focuses on affordable yet high-quality cosmetic products. It mainly operates in the mass segment and now offers a wide range of beauty products, including make-up, skincare and beauty tools - and the trend is growing. The main brands are:
- e.l.f. Cosmetics
- e.l.f. SKIN
- Naturium
- Well People
- Keys Soulcare
A central aspect of the business model is the direct-to-consumer (DTC) strategy, in which e.l.f. Beauty generates part of its sales via its own website and selected retailers, which enables direct customer loyalty and better control over the brand image. In addition, the company also uses traditional retail channels such as drugstores, supermarkets and specialized beauty stores. These channels have become significantly more important in recent years and are the driving force behind the strong growth. Without them, e.l.f. Beauty would probably not have become the volume market leader so quickly.
Gen Z and social media: cosmetics rethought
e.l.f. Beauty is also characterized by a strong presence in social media and digital marketing - arguably more so than other cosmetics manufacturers. For example, the distributor relies on influencer marketing and user-generated content to promote its brands and build an engaged community.
Premium quality at low prices and other promises
e.l.f. also plays a leading role when it comes to innovation. Beauty is also at the forefront of innovation. New products are regularly introduced that are based on current beauty trends and respond quickly to customer feedback. Above all, e.l.f. Beauty stands for cosmetics for the younger generation. Cosmetics that take ethical aspects into account. All products are vegan and cruelty-free, making them an ethically conscious choice. Under the label “e.l.f. Clean” label, they are formulated according to strict purity standards. They are also produced in a Fair Trade certified facility, guaranteeing fair working conditions and sustainable practices.
But that's not all: the products from e.l.f. Beauty products are characterized by their high quality at exceptionally affordable prices. They therefore deliver value for consumers.
Internationalization begins
Strongly increasing sales and already considerable profitability prove e.l.f. Beauty is right to do the right thing. A logical step is therefore not to limit sales to a national level, but to expand internationally - with Canada and the UK leading the way.
Internationalization is only just beginning. In the past financial year 2024, which ended on March 31, 2024, international sales accounted for 15 percent of total sales of just over one billion US dollars. This more than doubled compared to the previous year. Turnover in the USA increased by 71.3%.
Differences in competition
The market for mass cosmetics is highly competitive, no question about it. e.l.f. Beauty competes with major cosmetics companies such as L'Oréal and Estée Lauder. While L'Oréal and Estée Lauder offer both premium and mass market products, e.l.f. Beauty concentrates on affordable cosmetics for the head area. This allows it to address a broad target group, especially price-conscious consumers.
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Another striking difference is that e.l.f. Beauty markets the majority of its products directly via its own website, unlike many of its competitors. This not only avoids expensive stores, but also allows a lot of data to be collected, which enables direct customer loyalty and detailed feedback regarding product development.
A strong presence on social media and effective influencer marketing help e.l.f. Beauty to reach younger consumers in particular. All products from e.l.f. Beauty products are - as mentioned above - vegan and cruelty-free. This meets with great interest among many consumers. The combination of affordability, digital presence, innovation and ethical commitment clearly sets e.l.f. Beauty clearly stands out from its competitors.
Risks
One of the biggest risks for e.l.f. Beauty is its strong dependence on a few large retailers, which account for a significant proportion of sales. These are Target and Walmart, which together account for around 42 percent of sales. If you add the up-and-comer in the industry, Ulta Beauty, the dependency rises to almost 60 percent. The strong growth of e.l.f. Beauty's strong growth is therefore closely linked to its listing with the country's largest retailers.
However, this concentration also harbors the risk that changes in the business relationships or purchasing strategies of these retailers could have a significant impact on sales figures. In addition, periods of economic weakness or increased competition in the retail sector could influence demand for e.l.f. products. Another risk is the need to constantly introduce new products and cater to current trends in order to remain competitive.
The last e.l.f. Beauty quarterly figures from March 2024
Despite the risks, the figures for the last quarter speak for themselves in terms of growth. Sales increased by an impressive 71% to USD 321 million in the fourth quarter of 2024. For the full year 2024, the billion-dollar sales mark was exceeded for the first time. With an increase in turnover of 77% for the year as a whole, growth momentum slowed only slightly.
Earnings developed much more dynamically. Net profit for the year more than doubled to 128 million US dollars. Without the setback in the fourth quarter, earnings would have risen even more strongly. Nevertheless, the net return on sales is at an all-time high of 12 percent. Significantly more is possible in the future if one believes in the scalability of the business model.
The strong US business continues to be the growth driver. However, the recently launched international expansion is also keeping the pace of growth high. With a doubling of foreign sales compared to the previous year, growth was once again maintained at a high level. In view of the growth potential, foreign expansion could develop into a significant driver in the long term.
e.l.f. Beauty share forecast 2024/2025
The figures for the full year 2024 are also impressive. In particular, the barely slowing growth momentum points to continued high growth. This is made plausible by the parallel expansion abroad. It is therefore all the more surprising that sales growth of just 22% is forecast for the current full year 2025. Adjusted net profit is expected to increase by just under 4% at best.
The slowdown in growth momentum can presumably be explained by the sharp rise in sales due to the listing with large retailers. As long as no further retailers of comparable size are added, sales growth will collapse immediately.
Looking at the analysts' estimates, they consider a slightly higher turnover of USD 1.3 billion to be realistic. Growth is expected to remain well into double digits. According to the analysts, another major leap in sales of over 50 percent to USD 2.8 billion could then be possible in 2028.
The situation is different for EPS. Here, analysts expect a value of USD 2.79 for the full year 2025, which corresponds to an increase of 26% compared to the previous year's value of USD 2.21. On an adjusted level, e.l.f. Beauty only expects growth of 2.2 percent to USD 3.25 in the best-case scenario. In the long term, analysts see EPS trending sideways.
Important key figures of the e.l.f. Beauty share from the HGI analysis
In the HGI analysis, the e.l.f. Beauty share achieves top scorer status with 15 out of 18 possible points. With the exception of the valuation indicator EV/Sales and Gross Margin, full points were achieved in all categories.
The sales multiplier EV/Sales reached a value of 11.2 and is therefore already at the extreme limit of the point distribution for the HGI score. From a value of 12, no more points would have been awarded.
The gross margin looks somewhat better. Here, a value of 67.4 percent was achieved for the gross margin TTM. This is roughly in the middle of the interval between 50% and 75% for which points are awarded in the HGI analysis.
Looking to the future, the HGI score is expected to deteriorate significantly in the medium term with expected sales growth of clearly less than 30%. Three points will be lost for sales growth alone, which recently stood at over 76%. The Rule-of-40 score is also unlikely to be awarded any points. This key figure is calculated by adding the free cash flow margin to sales growth. This was only slightly positive at 6.1% in the last twelve months.
There is also likely to be a significant loss of points in the PEG ratio. The latest value of 0.74 is based on a PEG ratio of over 90 with EBIT growth of 123%. To ensure that this key figure also gains at least one point in future, the P/E ratio should not be more than four times the EBIT growth achieved.
If all possible point losses are added together, e.l.f. Beauty will find it difficult to maintain its HGI top scorer status in the future if growth does not pick up again in the medium term. From today's perspective, however, the analysts do not expect this to be the case.
Valuation of the e.l.f. Beauty share
The valuation of e.l.f. Beauty can be described as ambitious with a multiple of 11.2 on the turnover of the last twelve months. Only the exceptionally high growth of 76.9 percent in the last twelve months can justify such a valuation.
If one also considers that the company has already achieved solid profitability and that growth is also expected to be significantly lower in the future, the impression of an ambitious valuation can be regarded as confirmed.
The expected price/earnings ratio of more than 70 also confirms this impression. The company does not generate an extraordinarily high free cash flow. The free cash flow multiple EV/FCF, for example, is an incredible 183!
But investors seem to think differently about this share. They see potential that makes the market capitalization of USD 11.3 billion seem insignificant, provided the company continues its international expansion as it has in its home market of the USA.
In principle, the company's products appeal to everyone in the world. The younger, urban generation in particular is seen as the target group. Around 32 percent of the world's population, i.e. around 2.5 billion people. If the company succeeds in maintaining its market leadership here and reaching a large proportion of these people, the vision could be that of a new L'Oréal or Procter & Gamble.
However, it should not be underestimated that this is one of the toughest and most competitive markets in the world. Its strong positioning in the low-price segment and the establishment of its own brands is an advantage. The company is both the cost and volume leader here. However, the question arises as to how long the significantly better capitalized competition will let e.l.f. Beauty will let it go before it puts its own products on the shelves. The company's situation should be reassessed at the latest when competition increases.
Conclusion on the e.l.f. Beauty share
In conclusion, the verdict on the shares of e.l.f. Beauty is mixed. The company has established itself as a market leader in the low-price segment and appeals to Generation Z in particular with its affordable, high-quality and ethically conscious products. Despite the high valuation and the expected slowdown in growth in the current year, the share could still represent an interesting investment opportunity.
Above all, the international expansion could offer enormous growth potential. Should e.l.f. Beauty continues to expand successfully worldwide and open up new markets, the company could move into completely new sales dimensions and join the league of the most highly capitalized cosmetics manufacturers.
For long-term investors who believe in the potential and innovative strength of e.l.f. Beauty, the share could therefore be an interesting investment despite the high P/E ratio. However, the most recently forecast sales growth of 22% shows cracks in this future scenario.
The analysts take a similar view. Just under 70 percent recommend a buy, the rest a hold. However, they also see the share price potential as already exhausted with an average target price of USD 209.78.
