Please ensure Javascript is enabled for purposes of website accessibility

Why e.l.f. Beauty Stock Jumped 11% at the Start of Trading Today

By Reuben Gregg Brewer – May 22, 2020 at 10:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Although the outlook is muddy today, e.l.f. Beauty just released impressive earnings results that suggest its future remains bright.

What happened

Shares of e.l.f. Beauty (ELF -3.23%) started the day with a giant leap higher, gaining as much as 11% in the first 30 minutes of the trading day. There was little doubt about why investors were so excited: The cosmetics maker and retailer released earnings after the close on May 21 and the numbers were beautiful.   

So what

Despite being a relatively small cosmetics company, e.l.f. Beauty put up impressive results in its just-ended fiscal 2020. The company gained 50 basis points of market share, increased sales 6%, and expanded its gross margin by three percentage points. Full year adjusted earnings declined a touch, but the roughly 4.5% year-over-year drop (on a higher share count) was really rather modest when compared against the many positives.   

A woman standing at a makeup display

Image source: Getty Images.

The fiscal fourth quarter, which was directly impacted by coronavirus containment efforts, was also strong, with sales increasing by 13%. A jump in online sales was the driving factor, and pulling the company's stores from the top line would have resulted in a 16% top-line advance. Adjusted earnings in the quarter came in at $0.10 per share, up from $0.06 per share a year earlier. Although management noted that COVID-19 has made the future a little hazy, the brand appears to be holding up relatively well despite a difficult retail environment. And, if the full-year performance is any indication, it has a bright future ahead once the pandemic is in the rear-view mirror.   

Now what

Cosmetics is a competitive business, but e.l.f. Beauty appears to be not only holding its own against larger rivals, but actually gaining ground. COVID-19 will certainly be a major headwind for the company in the near term, however, long-term investors might still want to do a deep dive here.

Fiscal 2020 was a good year, but heed management's warning that near-term results could be less appealing. Wall Street liked what it read this time around, but it could just as easily decide that the first quarter of fiscal 2021 wasn't good enough -- even in the face of COVID-19. Indeed, fiscal 2020 may have set a fairly high bar. The stock, while down about 2.5% for the year, is now ahead of the S&P 500 index, which is off by roughly 8.5%.     

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

e.l.f. Beauty Stock Quote
e.l.f. Beauty
ELF
$37.50 (-3.23%) $-1.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.