Cruelty-free cosmetics maker ELF Beauty plunged from its all-time highs at the end of August after rallying more than 150% to start the year. That's offering a buying opportunity, analysts say, with a pair of new buy ratings based on a more-attractive valuation and room for growth. ELF stock surged Friday.
Jefferies upgraded ELF stock to buy from hold early Friday and raised its price target to $115 from $110. The recent pullback in ELF Beauty's EBITDA multiple to 23x from 37x presents a buying opportunity, analyst Ashley Helgans wrote in a research note.
The EBITDA multiple is a financial ratio comparing the company's annual earnings before interest, taxes, depreciation and amortization (EBITDA) to its overall enterprise value. The multiple can be used to determine company value and compare it to similar businesses in its industry.
The average EV/EBITDA ratio for ELF's competitors, including Coty, Estee Lauder and L'Oreal, is 21.64, FactSet data shows. ELF Beauty is growing much faster than rivals.
ELF Beauty's underlying demand remains robust and benefits from mergers and acquisitions, as well as international expansion, Helgans wrote. The company has grown above historical levels over the past year, but the brand still has significant room for growth. ELF stock gains should more than offset tough comparable company analysis in the 2025 fiscal year.
UBS initiated coverage of ELF Beauty on Wednesday with a $138 price target, implying 26% growth from current levels. The firm estimates ELF Beauty can generate 47% organic growth in fiscal 2024 and 20% growth in 2025, driven by innovation-led share gains across the mass beauty industry. Wall Street is still not fully appreciating ELF's top line potential, UBS says. The firm expects ELF to report 2024 and 2025 revenues 8% and 16% above consensus estimates, respectively.
FactSet analysts project 44% sales growth to $833.7 million for fiscal 2024, and another 18% growth to $985 million for 2025.
ELF Beauty has delivered huge growth in recent quarters, crushing views and sharply raising guidance.
ELF Stock
Shares bounced 3.5% to 99.91 Friday.
ELF stock tumbled about 29% from its all-time high of 139.85 on Aug. 31, posting declines in four of the past five weeks MarketSmith shows.
Shares tested their 40-week moving average on Friday, but are still holding above its 200-day line. Shares are trading well below their other moving averages.
Despite the recent downturn, ELF stock rallied nearly 75% in 2023 as of Thursday's close.
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