Where Will e.l.f. Beauty Stock Be in 3 Years?
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e.i.f. Beauty (NYSE: ELF) has evolved into one of the world's fastest-growing cosmetics companies in the two decades since its founding. The American underdog, which went public eight years ago, carved out a niche by targeting younger shoppers with affordable products, online sales, and savvy social media campaigns. It also sold its products at more brick-and-mortar retailers, acquired smaller companies, and expanded internationally.
If you had invested $1,000 in e.l.f. Beauty's initial public offering (IPO), your investment would be worth nearly $7,300 today. However, its stock has pulled back more than 30% over the past six months as investors fretted over its cautious near-term outlook. Let's see where its stock might be headed over the next three years.
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What happened over the past three years?
It's easy to see why e.l.f. Beauty impressed the bulls. From fiscal 2021 to fiscal 2024 (which ended this March), its revenue grew at a compound annual growth rate (CAGR) of 48%; its gross margin expanded from 65% to 71%; and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose at a CAGR of 57%. On a generally accepted accounting principles (GAAP) basis, its net profit grew at a CAGR of 174%.
| Metric | FY 2021 | FY 2022 | FY 2023 | FY 2024 |
|---|---|---|---|---|
| Revenue Growth | 12% | 23% | 48% | 77% |
| Gross Margin | 65% | 64% | 67% | 71% |
| Adjusted EBITDA Growth | (2%) | 22% | 56% | 101% |
Data source: e.l.f. Beauty.
That rapid expansion was driven by its robust organic growth, its use of high-quality marketing campaigns to promote its low-cost products (most of its items cost less than $20), and its sales at resilient superstore retailers like Target (NYSE: TGT) and Walmart (NYSE: WMT). It also acquired Naturium (which is a more popular brand among millennial women and men) to expand its reach beyond its core market of Gen Z women.
By comparison, L'Oreal's (OTC: LRLCY) revenue only grew at a CAGR of 14% from 2020 to 2023. Estée Lauder's (NYSE: EL) revenue actually declined at a negative CAGR of 1% from fiscal 2021 to fiscal 2024 (which ended this July). Both of those cosmetics heavyweights are heavily dependent on the fickle Chinese market, where consumer spending has been throttled by persistent macroheadwinds.
Yet e.l.f. Beauty doesn't sell many of its products in China. It still generates most of its revenue in the U.S., and its international business (16% of its revenue in its latest quarter) primarily sells its products in Canada, the U.K., the Netherlands, and Italy. Instead, e.l.f. Beauty produces "substantially all" of its products in China -- which keeps its costs low and gross margins high -- but sells them in other countries.