Cowen moved to the sidelines on both Sally Beauty ( NYSE: SBH ) and e.l.f. Beauty ( NYSE: ELF ) on Friday due to a weakening consumer and stretched valuations.
The firm’s analyst Oliver Chen pulled back his prior Buy-equivalent rating on the beauty-focused companies to Hold, noting that near term upside for each is limited. Specifically, Chen commented that e.l.f. ( ELF ) “appears expensive” after an over 35% surge in the past six months that has significantly outpaced the market. Meanwhile, Sally Beauty’s ( SBH ) clientele is likely to be hit hard by inflationary pressures.
“At SBH we see limited multiple expansion in the near term as we recognize areas of
potential weakness stemming from: lower income consumer exposure, the potential for
gross margin compression as promotional activities pick up and pricing benefits abate, and Sally's lack of diversification in products,” he explained.
Shares of both e.l.f. Beauty ( ELF ) and Sally Beauty ( SBH ) slid about 2% in premarket trading on Friday.
Chen suggested that Ulta Beauty ( ULTA ) and Olaplex ( OLPX ) are better options within the beauty space at present.
Read more on recent earnings results from Olaplex .
For further details see:
e.l.f., Sally Beauty downgraded at Cowen on consumer, valuation concerns