Shares of cosmetics giant e.l.f. Beauty (ELF +1.92%) stock soared 12% in January, according to data provided by S&P Global Market Intelligence. There were two main drivers: changes in tariffs that could benefit the company and investor sentiment that the stock might be undervalued.
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A cosmetics rockstar
E.l.f. has become one of the premier mass market cosmetics brands, displacing brands that have been at the top for decades. It has distinct branding, with a focus on eco-friendly products and hot-button cultural issues.
It continues to demonstrate incredible resilience despite a challenging market. Revenue increased 14% year over year in the 2026 fiscal second quarter (ended Sept. 30), and while there's been a major slowdown from much higher growth, it's still double-digit growth in an industry that's under pressure. U.S. mass cosmetics and skincare consumption grew only 2% in the period, while e.l.f.'s increased 7%. Management is guiding for 19% growth for the full year at the midpoint, while according to FactSet, the global beauty industry is expected to decrease 1%.
It's the top teen favorite brand, again, according to Piper Sandler's annual Taking Stock With Teens survey, and it reaches consumers of all ages.
The company is growing in all sorts of ways, expanding its presence globally, adding new segments, and acquiring new brands. It made a big splash when it acquired premium brand Rhode last year, giving it a completely new direction, and it's expecting Rhode sales to increase 40% this year. That could just be the start of e.l.f. moving into premium lines, and Rhode itself still has a long growth runway as e.l.f. launches it in new markets.
NYSE: ELF
Key Data Points
Too cheap to ignore?
E.l.f. stock tanked last year, losing almost 40% of its value in 2025. While decelerating sales played a part, the market was concerned about the company's high exposure to tariffs. In the second quarter, gross margin fell by 1.65 percentage points from the previous year, mostly due to increased tariffs.
A few things came together in January to turn the tide. One important change was President Trump's lowering tariffs, which should have a positive impact on e.l.f.'s margins.
E.l.f. has also been starting to look much more attractively priced. E.l.f. stock has been expensive, for good reason. It's performing well and has excellent long-term potential. Even with the pressure, gross margin was 69% in the second quarter, and adjusted earnings per share (EPS) were $0.68.
At the current price, e.l.f. stock trades at 22 times forward, 1-year earnings, which could be undervalued considering e.l.f.'s opportunities. The company reports third-quarter earnings later today, and investors should pay attention to the gross margin and how management feels about tariffs.
