It's been a roller coaster ride in 2025 for e.l.f. Beauty (ELF +2.33%). The stock was hammered after seeing its rapid growth slow early in the year, only for it to bounce back after the company announced the acquisition of skin care brand Rhode. But it was hit again following its fiscal second-quarter results, as gross margins were hurt by tariff costs, and management issued cautious guidance.
However, the company has a history of being conservative with its forecasts and still has a long growth runway.
The core business remains strong
The big news with e.l.f. is its recent acquisition of Rhode, but the company's core namesake business still has strong growth ahead. Last quarter, it guided for organic growth of 2% to 5%, but it's actually seeing organic consumption growth of 12% in the U.S. Organic growth is its revenue growth excluding acquisitions, while consumption growth refers to the sales its seeing at the retail level. There can sometimes be a mismatch due to stocking issues.
A small part of the disconnect is some softness in the U.K. and the company lapping its successful launch in Germany, but there is also currently a mismatch between shipments and consumption that will work its way out. Management is also usually conservative with guidance.
NYSE: ELF
Key Data Points
Meanwhile, the company raised prices by $1 on each product earlier in 2025, which should help drive revenue growth and recover some lost gross margin. E.l.f. also has room to continue increasing shelf space.
The company's namesake brand has taken market share in the U.S. mass color cosmetics space (mass refers to affordable, widely available cosmetics sold at locations like drug stores and general merchandise retailers) for 27 straight quarters, and it currently has about a 13% share. E.l.f. thinks it can almost double its share eventually and notes that it is above 20% shelf space at Target. It will expand its shelf space at Ulta Beauty this spring and thinks it will have an opportunity to grow its presence at Walmart in the coming years.
E.l.f. still has a huge international runway. The company's biggest international markets are the U.K. and Canada, and it's still focusing on launching in different stores in Germany. However, it continues to expand carefully, launching at Rossman drugstores in Poland and at LVMH's Sephora in Dubai in the United Arab Emirates.
Image source: Getty Images
The Rhode to recovery
That said, e.l.f.'s biggest opportunity lies with its recent acquisition of Rhode, a fast-growing skin care brand founded by Hailey Bieber, a model and businesswoman. Under her stewardship, it was able to grow to more than $200 million in sales in three years with little paid marketing, a handful of products, and only selling directly on its website. E.l.f. now has a huge opportunity to grow the Rhode brand even more.
E.l.f.'s success with its namesake brand has largely come down to innovation (using a fast-follower strategy, copying popular prestige brand offerings), influencer marketing, and increasing distribution. It can now apply that strategy to Rhode to help take the brand to new heights.
On the distribution front, e.l.f. recently launched at Sephora to much fanfare. Following an exclusivity period, expect the popular brand to appear in other outlets, such as Ulta Beauty stores.
Rhode's success came mostly on the back of having fewer than 10 products. While e.l.f. isn't going to suddenly flood the market with new Rhode offerings, expect the company to thoughtfully and gradually expand the product assortment.
It also should be able to push Rhode into some adjacent categories, like cosmetics. And e.l.f can begin to increase brand awareness beyond Bieber's following through its marketing network.
Time to buy the stock
Following its price decline, e.l.f.'s stock is cheap, trading at a forward price-to-earnings ratio (P/E) of about 22, based on fiscal 2027 analyst estimates and a price/earnings-to-growth ratio (PEG) below 0.4. Stocks with PEG ratios below 1 are typically considered undervalued.
E.l.f. Beauty is still a growth stock with strong opportunities. As such, it looks like a solid rebound candidate in 2026 and beyond.
