2 Beautiful Investments In A Growing Industry

Key Points

• Beauty stocks are experiencing tailwinds that have their shares moving higher. 
• Ulta Beauty is the group leader and on track for new all-time highs. 
• e.l.f. Beauty is the preferred small/mid-cap player in a competitive arena. 

Beauty stocks are outperforming their expectations and trending higher. The trend is supported by the analysts raising their ratings and price targets because of the robust outlook. The guidance for 2023 is good but might yet be cautious given the trends. Regardless, stocks like Ulta Beauty NASDAQ: ULTA and e.l.f. Beauty, Inc NYSE: ELF are tracking for new all-time highs and may reach those levels soon. 

Ulta Beauty Is The Industry Leader

Ulta Beauty rocked the market when it reported results in early March. The mall-anchored beauty products retailer grew revenue and earnings at a blow-out pace that renewed bullish activity among analysts. Marketbeat.com picked up 13 commentaries in the weeks following the report, and aside from one initiated coverage, all came with increased price targets.

The new consensus is only about 7% above the current price, but it is trending firmly higher and can be expected to continue this trend in 2023. A recent survey by Piper Sandler reveals the company is maintaining its leadership position among peers and growing its market share. 

“Ulta continues to hold the top beauty loyalty program membership at 63% of surveyed female teens with a loyalty membership, while Sephora ranked below Amazon for the second survey in a row at No. 3,” PIper Sandler analyst Korinne Wolfmeyer said in the note to clients. 

The most recent targets are well above the consensus, increasing the market. The most recent price target increase comes from Raymond James, which boost the target to $615 and is consistent with Piper Sandler. Piper Sandler sees the company growing at an above-consensus pace with an opportunity to grow into new verticals. 

“We see Ulta as continuing to be in growth mode as management looks to open additional doors across the US, expands in Targets, and increases its penetration of prestige and luxury products,” wrote Susan Anderson of Canaccord Genuity when she initiated coverage with a 22% premium to the price action. 

e.l.f. Beauty, Inc. Hyper Growth Phase Continues 

e.l.f Beauty stunned the market with its last report, doubling the expectation for earnings. The company’s growth and market share gain was leveraged with internal efforts that drove a wider-than-expected margin. The takeaway is that guidance was raised, and now the analysts expect another quarter of double-digit growth compounded with margin expansion. 

Among the latest commentaries is 1 from Morgan Stanley. Morgan Stanley analysts have an Overweight rating on this stock and call it the sector's preferred SMID (small-mid cap stock). Analyst Eric Serotta cited accelerating scanner data in his note to clients when he boosted the target by $19 to $94. That is shy of the high price target but a good 18% above the current price. 

The average rating is a Moderate Buy with a price target below the current action. The takeaway is that the price target is trending higher, and the most recent are all well above it. Assuming this trend continues, the stock should follow suit and rise to another new high. The institutional activity is mixed and may provide volatility for the market, but it is ultimately bullish. The institutions own more than 95% of e.l.f. Beauty and are buying more shares than they are selling. Given the high price the shares are trading at, that is to be expected as early investors rotate out and newer ones rotate in.