ELF Beauty Looks Attractive To Investors

ELF Beauty (ELF) is building a base as it continues its post-earnings rally. The IBD Sector Leader recently wowed investors and analysts alike with its increasing profits and sales.

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ELF Beauty makes and sells cosmetics and skin care products through retailers including Target (TGT), Ulta Beauty (ULTA) and various e-commerce sites. It says it can offer quality products at lower prices.

Now the company is making moves to solidify its place in the market. ELF completed its acquisition of high performance skin care brand Naturium on Oct. 4, for $355 million in cash and company stock.

Then on Nov. 9, ELF announced a partnership with video game developer Roblox (RBLX) on its e.l.f. UP! platform that teaches users to become socially aware entrepreneurs.

ELF Stock Builds A Base As It Comes Back

The IBD 50 stock is building the right side of a stage one cup base with a 139.85 buy point, according to MarketSmith pattern recognition.

Shares hit an all-time high on Aug. 31, after a long run that began in May 2022. ELF stock reversed sharply soon after reaching the high and began forming the cup.

The stock started its rally off the bottom of the base, after ELF handily beat its fiscal second-quarter earnings and sales estimates on Nov. 1. Shares steadily climbed and retook their 10-week moving average the week of Nov. 17. The beauty stock has gained more than 125% this year thus far.

Profits Keep Growing

ELF’s quarterly earnings have grown consistently at a triple-digit pace recently, posting increases of 128%, 182% and 223% in the last three quarters. Sales growth has also been robust and ranged between 76% and 78% during the same time period. Its gross margins also improved, mainly from lower inventory adjustments, cost savings and lower transportation costs.

“In Q2, we grew net sales by 76% and category share by 330 basis points, marking our 19th consecutive quarter of growth in each,” said Tarang Amin, ELF’s chairman and chief executive, in the company’s earnings release.

Also in the earnings release, the company raised its full-year fiscal 2024 profit and revenue outlook. ELF now expects full-year fiscal 2024 net sales to grow 55%-57%, with $48 million coming from its new Naturium business.

Analysts expect 62% full-year fiscal 2024 earnings growth and 14% in 2025, according to IBD’s MarketSmith.

Mutual funds own 67% of shares, with 734 owning ELF stock in September, up from 659 in June and 556 in March. In addition, the stock has an IBD Accumulation/Distribution Rating of A-, meaning institutions have done fairly heavy buying over the last 13 weeks.

Lastly, ELF stock holds a high 98 on both its IBD Composite and EPS ratings.

Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.

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