e.l.f. Beauty’s stock price has taken a beating over the past six months, shedding 49.4% of its value and falling to $67.87 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Following the drawdown, is now an opportune time to buy ELF? Find out in our full research report, it’s free.
Why Does e.l.f. Beauty Spark Debate?
Short for "eyes, lips, face", e.l.f. Beauty (NYSE: ELF) is a developer of high-quality beauty products at accessible price points.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, e.l.f. Beauty grew its sales at an incredible 50.8% compounded annual growth rate. Its growth surpassed the average consumer staples company and shows its offerings resonate with customers. 
2. Outstanding Long-Term EPS Growth
Analyzing the change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
e.l.f. Beauty’s EPS grew at an astounding 52.9% compounded annual growth rate over the last three years, higher than its 50.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Shrinking Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Analyzing the trend in its profitability, e.l.f. Beauty’s operating margin decreased by 5.8 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 10%.
Final Judgment
e.l.f. Beauty’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 16.8× forward P/E (or $67.87 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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