E.L.F. Beauty is almost out of a buy range as the cosmetics company digs itself out of a slump. ELF stock, the IBD Stock of the Day, returned to profit growth in the first three months of this year.
The Oakland, Calif.- based company has carved out a niche in the cosmetics industry by offering "inclusive, accessible, clean, vegan and cruelty-free" products. That model served it well, as the stock rocketed from a low of 20.49 in May 2022 to an all-time high of 221.83 in March 2024.
But after that 983% vault, the stock slumped as much as 78% to a low in April. The fast growth that propelled the stock started fading like lip gloss after eight hours.
Sales growth decelerated from 71% to 50%, 40%, 31% and 4% through the March-ended quarter. Earnings also slowed, from a 26% gain in the fiscal first-quarter ended March 2024 to 0%, a 6% drop and then 0% the next few quarters.
However, a turnaround appears to be taking shape. Sales bounced back 9% in the June-ended quarter, and analysts expect gains of 22%, 32% and 36% the next few quarters. EPS jumped 47% in the March quarter. Although earnings fell 19% in the June quarter, analysts expect EPS to fall 28% in the current quarter, picking back up 36%, 31% and 30% the following periods.
Bear in mind, this is nothing like the triple-digit earnings growth in 2022-23 that sparked the stock's huge advance. Still, the chart action is promising.
ELF Stock And Company Results
ELF stock's most recent leg up began shortly after the company announced its quarterly results Aug. 6. Sales and earnings beat analysts' expectations. The company had just closed its $1 billion purchase of Rhode. The fast-growing beauty brand founded by Hailey Bieber (pop star Justin's wife) generated $212 million in net sales for the 12 months ending March 31.
E.L.F. is also a value brand. In the earnings call, CEO Tarang Amin said the average price point for E.L.F. cosmetics is about $6.50, vs. nearly $9.50 for legacy mass brands and over $20 for prestige brands. Amin said partnerships with Target and Dollar General are finding success.
The company did raise prices to offset tariff costs. With tariffs still clouding the outlook, the company declined to give a full-year forecast. Amin told analysts that about 75% of E.L.F.'s global production comes from China. If those tariffs remain at 30%, the company estimates a gross impact of about $50 million on an annualized basis. It is looking at its supply chain and other areas with an eye to managing tariff costs.
ELF stock opened lower Tuesday after a Deutsche Bank downgrade to hold from buy. But the note also raised the price target to 128 from 121. The analyst cited a high valuation following the stock's rebound this year. But also, consumption trends suggest a lack of upside to estimates, and social media buzz has turned increasingly critical, TheFly.com reported.
Shares shrugged off the news, however, reversing higher to close with a 0.5% gain. On Wednesday, the stock was up 2.6% at midday. ELF stock has an IBD Composite Rating of 87.
Getting Support At Key Average
E.L.F. Beauty stock broke out of a double-bottom base with a 124.31 buy point Thursday, although volume was only moderately above average. The 5% buy zone goes to 130.52. A handle in the base had a 123.94 entry, nearly indistinguishable from the main entry.
Friday's high at 132.30 is yet another possible buy point, but it would be a risky buy because E.L.F. shares would be extended from the main buy point.
The stock is getting support at its 21-day exponential moving average, according to IBD MarketSurge. The relative strength line is near highs.
See The Latest Updates To IBD Watchlists
E.L.F. Beauty could be rising in sympathy with Ulta Beauty, which bounced back 8% Tuesday and was up slightly Wednesday. Ulta sold off 7% Friday despite better-than-expected quarterly results and a raised outlook.
ELF stock has a 21-day average true range (ATR) of 6.07%. The average true range is a metric in IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
With the S&P 500 and Nasdaq now in a power trend, investors can buy stocks with ATRs up to 8%, though they should be wary of being too concentrated in high-octane names.
