Elf Beauty (ELF) Good Results and Fairly Valued (Q3 2024 Earnings)

E.l.f. Beauty (NYSE:ELF) has consistently impressed investors with its strong financial performance and solid growth trajectory, making it a noteworthy player in the beauty sector. Despite facing challenges such as rising operating expenses and some pressure on profitability, the company’s robust revenue growth, innovative product portfolio, and strategic expansions continue to position it for long-term success. In this post, we will delve into ELF’s recent financial results, stock performance, valuation metrics, and growth potential, illustrating why the stock remains fairly valued and an attractive option for investors seeking exposure to the beauty industry.

1. About Elf Beauty (ELF)

Founded in 2004, E.l.f. Beauty has transformed from a small cosmetics brand into a household name, known for its commitment to providing high-quality beauty products at an affordable price. The company’s product range spans from skincare to makeup, with popular lines including its flagship e.l.f. cosmetics and the newly acquired Naturium skincare brand. E.l.f. Beauty prides itself on being inclusive and accessible, making premium beauty attainable for a wide audience. The company's products are available across major retail chains, both in-store and online, making it a strong contender in the beauty industry.

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2. Company Financial Performance

E.l.f. Beauty demonstrated strong performance in its Q2 2025 results, which ended in September 2024. The company reported revenue of $301.08 million, marking a solid 39.71% increase compared to $215.51 million in Q2 2024. This growth was driven by a combination of robust retail and e-commerce performance, continuing the trend of increased consumer demand for E.l.f.'s affordable beauty products​.

Despite the positive revenue growth, profitability faced challenges. The company reported earnings per share (EPS) of $0.33 for Q2 2025, a significant decrease of 43.1% from $0.58 in the same period the previous year. This decline in EPS was largely attributed to an increase in operating expenses, which rose by 69.17%, putting pressure on the bottom line​.

Looking at the trailing twelve months (TTM), E.l.f. Beauty reported revenue of $1.22 billion for the period ending in Q2 2025, a remarkable 59.01% increase from $765.74 million in Q2 2024. However, TTM EPS decreased by 11.43%, from $2.10 in Q2 2024 to $1.86 in Q2 2025, reflecting the impact of higher operating expenses on overall profitability​. Additionally, free cash flow per share (TTM) plummeted by 79.47%, from $1.90 in Q3 2023 to $0.39 in Q2 2025, indicating challenges in cash generation despite revenue growth​.

These results indicate that while E.l.f. Beauty continues to expand its top line, the increased operating costs and reduced profitability in terms of EPS and free cash flow reflect some pressure on the company’s financial health in the short term. However, with strong revenue growth and a focus on long-term market expansion, E.l.f. remains well-positioned for future growth.

3. Stock Price Performance and Valuation

Over the past year, E.l.f. Beauty has experienced a solid stock price growth of 26.5%, currently priced at $123 per share​. This increase reflects investor confidence in the company’s continued expansion, despite some challenges in profitability, as discussed in earlier sections.

In terms of valuation, E.l.f. Beauty's price-to-earnings (P/E) ratio stands at 66.28, which is relatively high compared to the broader market and the beauty sector median​. This ratio indicates that investors are willing to pay a premium for the stock, likely due to strong growth expectations in the future. While this high P/E ratio may raise concerns for some, it’s important to note that the company’s forward P/E ratio is significantly lower, at 32.63. This suggests that analysts anticipate a slowdown in growth compared to the past year but still expect continued profitability​.

Additionally, E.l.f. Beauty has a price-to-sales (P/S) ratio of 5.64. While higher than some industry peers, this ratio suggests that investors see strong long-term potential in E.l.f.’s ability to scale and maintain high revenue growth​.

Despite its elevated valuation, E.l.f. Beauty remains relatively attractive for investors looking for high-growth opportunities in the beauty sector, especially considering the company's ongoing strong performance and its successful expansion into new categories like skincare. The forward-looking growth prospects, combined with a more favorable forward P/E, make it a compelling stock for those confident in its future trajectory.

4. Company Growth Potential

E.l.f. Beauty’s future growth prospects are compelling. The company has been expanding its portfolio, notably with the $355 million acquisition of Naturium, a skincare brand that enhances ELF’s footprint in the skincare market​. This strategic acquisition positions ELF to capture more market share in the fast-growing skincare segment, which complements its makeup offerings.

Additionally, the continued strength of e-commerce, particularly through ELF's website and partnerships with major retailers, supports long-term growth potential. The beauty industry is shifting toward direct-to-consumer (DTC) sales, and ELF's agile business model positions it well to leverage this trend. E.l.f. Beauty has also invested heavily in social media marketing, which has allowed it to maintain relevance among younger consumers who value inclusivity and affordability in their beauty products​.

5. Risk

As with any investment, E.l.f. Beauty carries certain risks. While the company has demonstrated impressive growth, its high valuation poses a risk, especially if growth slows or market conditions change. The beauty industry is highly competitive, with both established giants like L’Oréal and emerging indie brands vying for market share. E.l.f. must continue to innovate and maintain its brand appeal to stay ahead of its competitors.

Another risk factor is the company’s recent acquisition of Naturium. While this acquisition strengthens ELF's skincare presence, integrating a new business can come with challenges, including the risk of disrupting existing operations or failing to achieve anticipated synergies​.

Additionally, fluctuations in consumer spending, especially during economic downturns, can affect the beauty industry, which is often considered discretionary. However, E.l.f. Beauty’s affordable pricing strategy has helped it weather such challenges better than many of its premium counterparts​.

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Conclusion

E.l.f. Beauty has proven itself as a leader in the beauty industry with strong financial performance, expanding market share, and a solid growth outlook. The company’s Q3 2024 results, including an 85% increase in net sales and substantial growth in net income, highlight its operational success. Despite a high valuation, ELF’s future growth potential, driven by the Naturium acquisition and its expanding e-commerce footprint, suggests that it remains a solid investment choice.

While there are risks, particularly with the integration of Naturium and the potential impact of a high P/E ratio, the company's strong market position and robust cash flow make it an attractive investment for those seeking exposure to the beauty sector. Thus, E.l.f. Beauty remains a compelling stock for long-term investors looking to capitalize on the ongoing growth of affordable, quality beauty products.