e.l.f. Beauty Inc ELF, a beauty and cosmetics company, is more accurately labeled as a "fast fashion beauty company," according to DA Davidson's Linda Bolton Weiser. The company sells high-quality and prestige-inspired beauty products at "extraordinary value" as the average retail price point per item is just $3.
Bolton Weiser initiated coverage of elf Beauty's stock with a Buy rating and $26 price target.
One of elf Beauty's most compelling features is the company's large exposure to the multi-cultural, millennial and beauty enthusiast, the analyst argued. This key demographic also happens to be the one that drives most of the growth in the beauty industry.
elf Beauty's 2016 performance was strong with a 20 percent sales growth rate and 21 percent operating profit growth, but this is projected to expand to 26 percent and 28 percent, respectively, Bolton Weiser said. As such, the company is still in its infancy with plenty of growth potential ahead.
In fact, elf Beauty's brand awareness stands at 13 percent, which seems low but is more than double the 6 percent it tracked at years ago, the analyst added. Well-established national brands boast a brand awareness in the 50 to 60 percent rage.
Finally, elf Beauty has a strategy to boost its gross margins that's two-fold: 1) innovation and new products, and 2) improvements to existing products that offer incremental benefits to consumers and a lower cost.
Bottom line, elf Beauty's stock is trading at just 14.3x 2018E EBITDA which is a "reasonable valuation" given its superior growth profile versus its peers.
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