e.l.f. Beauty Has Giant Quarter, Shares Hit New High

Key Points

• e.l.f. Beauty reported blow-out results with the stock moving toward a new all-time high. 
• Analysts have been supporting the stock and may help drive it higher. 
• Institutions own the stock, about 95%, and the buying has accelerated in recent quarters.

e.l.f. Beauty NYSE: ELF is in an uptrend and gaining momentum. The company’s mix of quality and value resonates with consumers, driving unprecedented growth.  The company outpaced the Marketbeat.com consensus estimates for FQ4, blew right past them, and guided the next year higher, so shares surged more than 10%. Based on the momentum, the F24 results will probably be better than forecast, which will help sustain a rally. Results from Target NYSE: TGT and Walmart NYSE: WMT confirm the trend; they report consumers are flocking to health and beauty products and have shifted their inventory mix to meet the demand. 

e.l.f. Beauty Has Blowout Quarter 

e.l.f. Beauty had a blowout quarter reporting $187.4 million in net revenue. This is up 78.3% compared to last year, beating the consensus estimate by 2000 basis points. The gains were partly driven by pricing actions, volume, and market share gains that led to wider margins. According to Nielson, the company gained 270 basis points of market share in the quarter, putting it in the #3 spot in the US. 

The margin news is even more impressive. The company widened the gross margin by 470 basis points due to pricing, supply chain improvement, declining freight costs, and leverage. The gross margin came in at 69% and almost 700 basis points better than expected despite SG&A costs rising. SG&A costs are up due to increased ad spending and growth investments that are working. The bottom line of $0.42 is up quadruple digits compared to last year and is more than double the analysts' consensus estimate. This led to improved guidance and balance sheet. 

The company raised its guidance for revenue and earnings to a range above the Marketbeat.com consensus estimate. Revenue is expected to be $705 million at the low end of the range compared to the $637.75 consensus figure, and EPS will also be strong. Adjusted EPS is expected to be $1.73 to $1.76 compared to $1.64.

The Sell-Side Supports e.l.f. Beauty

Sell-side activity is supportive of ELF stock. The analysts have been driving the price higher with upward price target revisions and may continue to do so now that guidance is in. The current consensus is well below the post-release price action, although the most recent targets have the stock trading even higher and in the new all-time-high territory. The institutions buy the stock and own about 95% of the shares. The takeaway from their activity is that rotation is happening, which is no surprise with shares at record-high levels. Still, activity is ramping to record highs and bullish on balance.  

The balance sheet helps keep investors interested. The company’s F23 performance allowed it to flip its balance sheet from net debt to cash over the past year. The company has over $120 million on the books, up from $43 million last year, and debt fell to $60 million from $91. 

The Technical Outlook: e.l.f. Beauty Rockets Higher 

Shares of ELF surged 12% on the news and may move higher. The risk is that profit-takers may cap gains at this level which could lead to range-bound trading. If the market follows through on the move and sets a new high, more new highs are likely. The odds of new highs will increase if the analysts increase the price targets. In that event, another sustained rally may form.