2023-05-08 05:14:44 ET
Summary
- ELF is known for providing customers with high-quality cosmetics at reasonable costs.
- Customers are dedicated to the brand because of its high-quality products and robust presence on social media.
- Its solid fundamentals are very promising and inspire my bullish thesis.
Introduction
As a market leader, e.l.f. Beauty Inc. ( ELF ) is known for offering customers high-quality cosmetics at reasonable costs. Customers are dedicated to the brand because of its high-quality products and robust presence on social media. I will evaluate the company in this analysis by covering its business model, financials (growth), market, and valuation.
Business Model
ELF was founded in 2004; in 2016, it went public on the stock market. The company's mission is to offer high-quality cosmetics at reasonable pricing. The business has been able to set itself apart from rivals and win the loyalty of its customers as a result. e.l.f. Cosmetics, W3ll People, and Keys Soulcare are the three divisions the company works under.
Its flagship brand, e.l.f. Cosmetics provides a variety of beauty items, from skincare to makeup. The company is well known for its cruelty-free and vegan-friendly products. W3ll People is a high-end company that emphasizes natural beauty. The company was formed to employ natural components to make cosmetics that provide a carefree, opulent appearance. Skincare brand Keys Soulcare sells items that encourage self-care and self-love.
Industry Trends
From 2023 to 2030, the worldwide cosmetics industry is projected to rise from its 2022 valuation of $262.21 billion at a CAGR of 4.2%. Demand for organic and natural cosmetics, expanding interest in personal hygiene and grooming, and the proliferation of online retail all play significant roles in fueling this expansion.
The shift toward natural and natural cosmetics has significantly impacted the beauty market. There has been an uptick in customers looking for sustainable, healthy goods. Therefore, businesses that adopt clean beauty methods are poised for rapid expansion. For this reason, I am bullish on ELF, given its strong footprint in this sphere.
Financials: Growth, Growth, and Growth
Growth stocks are sought after by investors because of the spectacular returns they provide on the back of above-average financial growth. However, finding a solid growth stock is challenging. Given this context, I am pleased about ELF's progress on the economic front, and I think this is a very good prompt for investors to think about purchasing ELF stock. Below are the major highlights of its growth.
Earnings
Stocks with dramatically increasing profits tend to catch the eye of most investors, making earnings growth a crucial consideration. For growth investors, a company with double-digit earnings growth is better and typically a sign of good prospects. Despite ELF's 13.5% EPS growth rate in the past, investors should be more concerned with its expected growth in the future. This year, analysts predict a 13.8% increase in earnings per share for the company, which compares favorably to the industry average of 0.9% growth.
Cash Flow
While consistent and healthy cash flow is essential for any enterprise, rapid expansion requires even more rapid financial infusions than do more established businesses. Because of their substantial cash reserves, these businesses can safely take on new ventures without seeking expensive external financing. ELF is growing its cash flow faster than its competitors (19.7% annually). The rate is lower than the typical 10% industry rate.
Though investors should focus on the present rate of cash flow growth, the rate in the past might provide valuable context for the present number. Compared to the sector average of 4.5%, the company's annualized cash flow growth rate over the past three to five years has been 56.9%.
Revisions Are Positive
Investors should also think about the rate at which earnings estimates have been rising or falling. A rising pattern is promising. Trends in earnings estimate revisions are highly correlated with near-term stock price fluctuations, according to empirical studies.
I am optimistic about ELF's future growth after seeing earnings projections for this year revised upward. Therefore, investors should be encouraged to acquire this company to take advantage of these optimistic projections.
YCharts
Valuation
ELF has a market capitalization of $4.71B, with a forward GAAP price-to-earnings ratio of 93.90 times. The company has a trailing price-to-earnings ratio of 103.50 times higher than the industry average. However, as discussed in the preceding section, I believe this high valuation is justified by the company's marginal growth figures, which are way above its peers.
Additionally, the market's high expectations for the company's future profits are reflected in the lower forward PE ratio. The lower forward PE ratio signifies that the market expects this company to grow its earnings to a point of lowering its PE ratio. I think this upbeat outlook is founded on the company's history of optimistic earnings estimate revisions and a steady expansion rate. This company's future success should also be influenced by the industry's expected rate of expansion.
Conclusion
EFL is a rapidly expanding cosmetics business with a reputation for providing reasonably priced goods. The firm has steadily increased earnings and popularity among its clientele. Because of its attractive valuation, I am optimistic about the company's prospects. This company has strong fundamentals, which gives me confidence in its future and leads me to recommend it as a buy for growth investors.
For further details see:
e.l.f. Beauty: Solid Fundamentals Inspire Bullish Trend