Shares of cosmetics company e.l.f. Beauty (ELF 2.36%) were crushed on Friday after the company reported financial results for its third quarter of 2025. As of 2:30 p.m. ET today, e.l.f. Beauty stock was down 19%. That was slightly better than the 28% it was down earlier in the day, but it was a painful drop nonetheless.
The growth is suddenly gone
E.l.f. Beauty stock is now down nearly 70% from its all-time high and down over 40% year to date, so allow me to cut to the chase of the problem: Management said that sales were slower than expected in January, motivating it to lower its financial guidance for the upcoming quarter. The cosmetics stock had traded at a high valuation because it was a high-growth opportunity. But with growth now showing signs of weakness, investors are heading for the hills.
Unfortunately, this commentary overshadowed strong third-quarter financial results for e.l.f. Beauty. The company's net sales were up 31% year over year to $355 million, which was ahead of expectations. Moreover, its sales guidance for fiscal 2025 was only lowered by about 2%, which hardly seems worthy of a 19% drop for the stock price.
That said, e.l.f. Beauty only expects net sales of about $329 million in the fourth quarter. For perspective, it had net sales of $321 million in the same quarter of fiscal 2024. In short, its growth has evaporated, and it started the year trading at a price-to-sales ratio (P/S) of 6, which is pricey for a no-growth cosmetics company.
Is there any hope for e.l.f. Beauty?
Many investors are worried about a potential trade war between the U.S. and China, considering e.l.f. Beauty sources nearly all of its products from China. Management sounds calm about it, saying that it plans to do what it did when the trade war heated up in 2019. But I'm not sure how reassuring that was to investors considering its earnings per share (EPS) were down in both 2018 and 2019.
Personally, I think the slowdown in net sales and potential trade-war pressures will be temporary for e.l.f. Beauty. But it remains to be seen how long it will take to push through the headwinds. So investors will need to be patient.
