Shareholders of e.l.f. Beauty would probably like to forget the past six months even happened. The stock dropped 46.8% and now trades at $69.02. This might have investors contemplating their next move.
Given the weaker price action, is this a buying opportunity for ELF? Find out in our full research report, it’s free.
Why Does ELF Stock Spark Debate?
Short for "eyes, lips, face", e.l.f. Beauty (NYSE: ELF) is a developer of high-quality beauty products at accessible price points.
Two Things to Like:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, e.l.f. Beauty’s sales grew at an incredible 45.2% compounded annual growth rate over the last three years. Its growth beat the average consumer staples company and shows its offerings resonate with customers.
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, e.l.f. Beauty’s margin expanded by 12.2 percentage points over the last year. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. e.l.f. Beauty’s free cash flow margin for the trailing 12 months was 14.1%.
One Reason to be Careful:
Fewer Distribution Channels Limit its Ceiling
With $1.52 billion in revenue over the past 12 months, e.l.f. Beauty is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.
Final Judgment
e.l.f. Beauty’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 20.5× forward P/E (or $69.02 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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