E.l.f. Beauty (ELF +0.26%) has become one of the most important cosmetics companies in the world, stealing market share from the traditional leaders over the past few years. However, despite the company's success, the stock has been disappointing for investors over the past year, down 42%. Can it rebound next year?
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What's happening in 2025
It's not an easy time for any cosmetics company. Inflation is still high, affecting discretionary purchases, and new tariffs are affecting companies that rely on an international manufacturing process, especially if goods come from China. Since 75% of E.l.f.'s products are made in China, this is a big issue. So while top-line growth is slowing down due to consumer pullback, the bottom line is declining as costs increase. That's not a great growth recipe.
On the plus side, since cosmetics companies as a category are struggling, and many people may be switching down from luxury brands to mass brands, E.l.f. is still capturing market share. It also recently rolled out luxury brand Rhode at Sephora, which it acquired a few months ago, in what it described as a "record-breaking" launch.
Here's how it played out in the 2026 fiscal second quarter (ended Sept. 30): Sales increased 14% year over year, gross margin decreased 1.65 percentage points to 69%, and adjusted earnings per share (EPS) fell from $0.77 last year to $0.68 this year. Worse, management guidance for full-year sales came in below analyst expectations.
NYSE: ELF
Key Data Points
How things could change in 2026
For things to go better for E.l.f. in 2026, it would have to report progress in expanding its supply chain or make more products locally to avoid tariffs. That's not necessarily a simple move. It would also benefit from lower inflation, although that's not within its control. If it does beat expectations, that should boost the stock price.
Long term, it has developed a competitive brand that has risen to the top of its space, and adding new acquisitions is one way for large companies to boost growth. With its future opportunities, this could look like an opportunity to buy on the dip.
The problem with deciding that E.l.f. stock is a buy at this price based on future potential is that even at this price, E.l.f. stock isn't cheap. It trades at a price-to-earnings (P/E) ratio of 58. On the one hand, that implies market confidence in its prospects. On the other hand, that's quite a premium price tag for a stock reporting middling results and guidance.
There's a chance that E.l.f. can rebound next year, but right now it looks like there could be volatility until the environment becomes more stable.
