On Wednesday, e.l.f. Beauty (NYSE:ELF) sustained its Buy rating and $223.00 price target from DA Davidson, despite experiencing a slower point-of-sale (POS) growth than anticipated. The company's recent performance showed a deceleration in the last two weeks, with POS growth falling to +13.6% year-over-year (Y/Y) and +9.8% Y/Y, respectively. Additionally, the two-year stack also showed a deceleration.
The analyst noted that the POS growth did not re-accelerate to the +20% Y/Y as hoped, even though prior-year comparisons became easier. The deceleration was observed even though October's prior-year comparisons dip into the +40% range, which could potentially allow for POS growth re-acceleration.
Despite the recent deceleration, DA Davidson remains optimistic about e.l.f. Beauty's prospects. The firm believes that the company should still be able to surpass the second fiscal quarter of 2025 (F2Q25) consensus estimates and may even increase its full-year 2025 (FY25) guidance. However, the analyst suggests that the extent of the upside and the potential guidance raise might be less substantial than previously expected.
The analyst's price target of $223 is based on a multiple of 38 times the calendar year 2025 estimated EBITDA of $333 million. This valuation reflects the firm's confidence in e.l.f. Beauty's long-term growth prospects, despite the current slowdown in POS growth rates.
The market's response to e.l.f. Beauty's performance and future guidance may remain uncertain until the company's CEO articulates a clear long-term growth strategy. Investors may experience some volatility in the trading of e.l.f. Beauty shares until such a growth algorithm is presented.
In other recent news, e.l.f. Beauty has reported a 50% increase in net sales and an 80 basis point growth in gross margin, marking a 22-quarter streak of sales growth. The company has also authorized a new $500 million share repurchase program and raised its full-year outlook, projecting net sales growth of 25-27% and adjusted EBITDA growth of 26-28%.
These developments follow the recent adjustment of e.l.f. Beauty's price target by TD (TSX:TD) Cowen to $150, Piper Sandler to $162, and BofA Securities to $190, all maintaining a Buy rating. B.Riley has initiated coverage on e.l.f. Beauty with a Buy rating and a price target of $175.
The company has also expanded its global footprint through strategic retail partnerships and market expansions, including a major retail launch in Germany and an increased presence in multiple countries. This growth is fueled by a commitment to making beauty accessible to all and responding to consumer demand in various regions.
Despite a softer macroeconomic environment, analysts remain positive about the company's ability to reach the higher end of management's financial projections for both revenue and earnings.
InvestingPro Insights
In light of e.l.f. Beauty's current market performance and DA Davidson's optimistic outlook, InvestingPro data and tips offer additional context for investors. The company's market capitalization stands at a robust $6.34 billion, with a high P/E ratio of 51.12, signaling investor confidence in its future earnings potential. This is further supported by an impressive year-over-year revenue growth of 68.32% as of the last twelve months leading up to Q1 2023. The gross profit margin during this period was also strong, at 70.91%, underscoring the company's efficiency in managing its cost of goods sold.
InvestingPro Tips highlight that analysts expect sales growth in the current year, which aligns with DA Davidson's positive outlook for surpassing F2Q25 consensus estimates. Moreover, e.l.f. Beauty's gross profit margins have been impressive, reinforcing the company's solid financial health. It's worth noting that the stock is currently considered to be in oversold territory according to the RSI, which could suggest a potential rebound opportunity for investors.
For those seeking a more comprehensive analysis, InvestingPro offers additional insights on e.l.f. Beauty, with a total of 19 tips available, providing a deeper dive into the company's financial health and market performance.
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