elf Beauty on a shelf; a good time to buy

photo collage of cosmetics and skin care products on pink background

Key points

  • elf Beauty had a stellar quarter, outperforming by 1,300 basis points on revenue.
  • Guidelines have been put forward, but they may still be cautious, given the trends.
  • Analysts are raising their targets and driving the market higher.
  • 5 titles we like most about Elf Beauty

Elf Beauty, Inc. NYSE: ELF has a strong upward trend and will likely continue into 2024. The company is in a hyper-growth phase that came out of nowhere and is gaining momentum. The stock price struggles to maintain traction following third-quarter results and fourth-quarter guidance, but the struggle will likely be short-lived due to business momentum. Furthermore, a healthy correction in the share price is needed after the 100% rise seen in recent months. Taking a small profit now will give the market time to digest the news and prepare for the next rally.

The strength of the Beauty Q3 elf is not unexpected

elf Beauty had a stellar quarter with revenue growth of 85%, outperforming consensus by 1,330 basis points. That said, the strength is not unexpected because analysts have been light on their forecasts throughout the year. Among its many selling points are the company’s digital footprint and resonance among younger shoppers. The company has steadily gained quarterly market share for years and added another 305 basis points in the third quarter. Retail is also cited as an area of ​​strength, gaining share from names like The Estee Lauder companies NYSE:EL and other legacy cosmetics companies.

Margin news is also conducive to rising stock prices. The company expanded its gross and operating margins to significantly improve the bottom line. The margin improvement is due to forex-friendly factors, lower freight costs, mix and savings, with at least three of these factors expected to persist into the fourth quarter and first half of 2024. The $0.75 in earnings adjusted earnings are double last year’s adjusted earnings

The driving is mixed. The company raised its full-year forecast, but to a range with revenue below consensus forecasts and earnings between them. Revenue is expected to grow by just $12 million sequentially, bucking the trend and a significant slowdown in growth, prompting caution from management.

As cosmetics and personal care items were among the top sellers in 2023, strength is expected in 2024 from the sector, particularly Elf, and the odds of outperformance are high. Over the past four quarters, the company has outperformed expectations by an average of $28 million. It may continue at this pace due to rapid market share gains and customer penetration.

Analysts like the look of the Beauty elf

Analysts like Elf Beauty’s looks and rate it a Moderate Buy. The consensus rating has remained stable over the past year, but the price target is increasing. The only downside is that the consensus target lags the market by 10%, but still rises after the third quarter release. The first two revisions come from Bank of America and UBS Group, which maintained Buy ratings and raised price targets. They set targets at $202 and $200, the new high end of analysts’ range, and expect a 15% upside from the current price movement. This is the second price target for each so far in 2024.

Even institutions are buying into the Beauty elves’ growth story. Institutions own more than 90% of the shares, much of which are fund holdings, and their activity will increase in 2023.

The technical point of view: elf Beauty takes a break

ELF stock price action peaked ahead of the third quarter results and showed downward pressure thereafter. The caveat is that downside pressure is minimal and support is evident. The support is above the 30-day EMA, which is significant. Assuming the market can sustain this level, the rally could continue soon. If not, the consolidation could take the market down to the $155 region, where support should be solid. If not, this market could drop to $150 or lower, but that is not expected, with analysts raising their targets and setting new highs.

elf stock charts

Before you consider the beauty of elves, you’ll want to hear this.

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