Is e.l.f. Beauty Stock a Smart Buy Before Q1 Earnings?

e.l.f. Beauty, Inc. ELF is likely to register top-line growth when it reports first-quarter fiscal 2025 earnings on Aug 8. The Zacks Consensus Estimate for revenues is pegged at $302.64 million, which indicates a 39.9% increase from the year-ago period.

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However, the bottom line is likely to have declined year over year. The consensus mark for earnings has dropped by 7.8% in the past 30 days to 83 cents per share, which implies a 24.6% decrease from the year-ago quarter's figure. ELF has a trailing four-quarter earnings surprise of 54.6%, on average.

What the Zacks Model Unveils

Our proven model doesn't conclusively predict an earnings beat for e.l.f. Beauty this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here.

Though e.l.f. Beauty currently carries a Zacks Rank #2, it has an Earnings ESP of -0.37%.

Factors to Note

e.l.f. Beauty has been benefiting from its focus on expanding its product portfolio and driving innovation across its cosmetics offerings to cater to evolving consumer preferences and trends in the beauty industry. Recognizing the shift toward online shopping, the company has also been investing in enhancing its digital and e-commerce capabilities.

e.l.f. Beauty has been witnessing net sales growth and market share gains for 21 straight quarters now, reflecting the company's strong operational execution and market demand. Strength in the color cosmetics category has been working well for e.l.f. Beauty. On its last earnings call, management stated that it remains optimistic about this category, which is likely to have aided sales in the first quarter of fiscal 2025.

The company's skincare category has also been doing well, and management sees significant potential for growth in this category, per the last earnings call. Gains from new product launches and the acquisition of Naturium (a complementary skincare brand) are likely to contribute to the upcoming results.

ELF also views international markets as a significant growth area. Apart from this, e.l.f. Beauty has been actively expanding its retail presence and distribution channels to enhance brand visibility and accessibility. The company has forged partnerships with major retailers like Target TGT, Walmart WMT and Ulta Beauty ULTA, securing shelf space in key markets. By diversifying its distribution channels, e.l.f. Beauty has strengthened its market position and captured a broader customer base across different geographies.

However, high raw material costs, particularly for ingredients used in cosmetics and skincare products, could have led to increased production expenses. Additionally, increased investments in marketing and research & development (R&D) to sustain innovation and market presence might have impacted profitability.

Price Performance & Valuation

Shares of e.l.f. Beauty have rallied 7.4% in the past three months against the industry's decline of 20.7%. The cosmetics and skincare product company also outpaced the broader Zacks Consumer Staples sector and the S&P 500's respective gains of 3% and 2.9% in the same time frame.

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e.l.f. Beauty is currently trading at a forward 12-month P/E ratio of 46.96, exceeding the industry average of 22.72 as well as the S&P 500's 20.76. We believe that this premium valuation reflects the company's successful track record, innovative product offerings and effective strategies in capturing market share, indicating that e.l.f. Beauty is positioned well for continued success and expansion in the beauty industry.

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Investment Thesis

e.l.f. Beauty's strategic initiatives, consistent market share gains, robust revenue growth and innovative product offerings make it a standout player in the beauty industry. The company's effective digital and e-commerce strategies, strong retail partnerships and international expansion efforts further bolster its growth prospects.

While high raw material costs and increased investments in marketing and R&D could impact short-term profitability, e.l.f. Beauty's strategic focus on cost management and operational efficiencies are likely to mitigate these effects. Given these strengths and an impressive stock price performance, investors should consider e.l.f. Beauty a valuable addition to their portfolios.

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