You may have never heard of e.l.f. Beauty (ELF 2.04%), but thanks to its nearly 140% gain in 2023, this under-the-radar stock is quickly becoming a must-know name.
So, is there still time for new investors to jump aboard? Or is this hyper-growth stock too hot to handle? Let's dive in and find out.
What is e.l.f. Beauty?
E.l.f. Beauty makes, markets, and sells cosmetics and skincare products in the U.S., Canada, and the U.K. In addition to being vegan, cruelty-free, and fair-trade certified, e.l.f. Beauty's products are reasonably priced. In fact, e.l.f. Beauty's average unit retail (AUR) -- or the average sale price for its products -- is around $6. By comparison, top mass brands, such as L'Oreal or Estee Lauder, have AURs around $9. Prestige brands like Lancome, Bobbi Brown, or First Aid Beauty often have AURs above $20.
Still a relatively small company, e.l.f. has a market cap of $7.2 billion, meaning it is dwarfed by much larger competitors like L'Oreal (market cap of $227 billion) and Estee Lauder ($54 billion).
Why is ELF stock soaring?
In short, e.l.f. Beauty stock is soaring because it's crushing the competition, despite its status as an upstart. In its fiscal 2024 first quarter (ended June 30), e.l.f. recorded year-over-year revenue growth of 76%. That makes 18 straight quarters where e.l.f. has recorded rising revenue.
Data by YCharts.
What's more, e.l.f. is taking significant market share. The company has gained 260 basis points of market share in the mass cosmetics category over the last 12 months, while its larger competitors have all lost ground, according to Nielsen data.
E.l.f. Beauty's success inside Target stores is one of the most significant factors for its growing market share. According to e.l.f., the company is now the top color cosmetics brand at Target with an 18% market share.
E.l.f. Beauty's other big competitive advantage
Sure, e.l.f. Beauty's low price point is one factor helping it succeed against its larger competitors, but there's something else too: the company's innovative marketing strategy.
E.l.f. has turned to what it terms "disruptive" marketing to attract new customers and generate buzz around its products. As one example, the company partnered with social media influencer Mikayla Nogueira, who has over 17 million followers between TikTok and Instagram, for a collaboration that led to record site visits and an 18-minute sell-out of a limited-time product offering.
Furthermore, e.l.f. is utilizing short-form digital content with other influencers and celebrities to deliver billions of impressions and drive brand awareness.
Is it too late to buy e.l.f. Beauty?
While it's clear that e.l.f. is an up-and-coming beauty brand, the question remains: Is it a stock worth owning?
Its valuation is lofty -- the company's price-to-sales multiple is over 11, while its competitors trade around 3 to 5 times sales. However, e.l.f. is growing revenue at over 75% in its last two quarters, while its competitors are struggling to grow at all.
So, while e.l.f. isn't going to be a stock appropriate for every portfolio, growth-oriented investors should consider it if they're willing to hold it long-term.
