If you are wondering whether e.l.f. Beauty at around US$81.50 is still a fair deal or starting to look stretched, you are in the right place.
The shares have returned 4.7% year to date, with an 11.6% return over the past year, although the stock has also seen a 0.7% decline over the last week and a 9.4% decline over the last month.
Recent coverage has focused on e.l.f. Beauty as a fast growing cosmetics name with strong brand recognition in mass retail channels, and the stock has often been discussed alongside higher priced beauty peers in terms of market positioning. This context helps explain why investors have been sensitive to shifts in sentiment around growth expectations and competition, which can influence the kind of price swings you see in the short term.
Right now, our valuation model gives e.l.f. Beauty a value score of 2/6, and next we will look at what that means across different valuation approaches and how you can go one step further with an even richer way to think about value.
e.l.f. Beauty scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A Discounted Cash Flow, or DCF, model estimates what a business could be worth today by projecting its future cash flows and then discounting those back to a single present value figure.
For e.l.f. Beauty, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The company’s latest twelve month free cash flow is reported at about $226.6m. Analyst inputs and subsequent extrapolations feed into a ten year path of free cash flow, with one of the anchor points being a projected $182m in 2028, all stated in US dollars.
Putting those cash flows through the DCF model produces an estimated intrinsic value of US$50.39 per share. Compared with the current share price of about US$81.50, the DCF output suggests the stock is 61.8% overvalued on this methodology.
For a profitable company like e.l.f. Beauty, the P/E ratio is a useful way to gauge what investors are currently willing to pay for each dollar of earnings. A higher or lower P/E often ties back to what the market expects for future growth and how much risk investors see in the business.
Right now, e.l.f. Beauty trades on a P/E of 46.31x. That sits well above the Personal Products industry average P/E of 23.04x and the peer average of 12.79x, so the stock is priced at a higher multiple than many comparable names.
Simply Wall St’s “Fair Ratio” for e.l.f. Beauty comes in at 50.58x. This is a proprietary estimate of what a reasonable P/E could be for the company given factors such as its earnings growth profile, industry, profit margins, market cap and risk characteristics. Because it blends these company specific inputs, the Fair Ratio is often more tailored than a simple comparison to peers or an industry average, which may not share the same fundamentals.
Comparing the current P/E of 46.31x with the Fair Ratio of 50.58x suggests the shares are trading somewhat below that fair range, based on this measure of value.
Earlier we mentioned that there is an even better way to think about valuation, so let us introduce Narratives, a simple way for you to attach your own story about e.l.f. Beauty to the numbers you care about, such as fair value, revenue, earnings and margins. You can then link that story to a financial forecast and a fair value that you can compare with the current share price.
On Simply Wall St’s Community page, Narratives are available as an easy tool used by millions of investors. You can see different views side by side, update them as fresh news or earnings arrive, and quickly judge whether a Narrative that points to fair value of around US$100 or one closer to US$251 feels closer to your own view compared with today’s price.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
