ELF Beauty is Thursday's pick for the IBD 50 Growth Stocks To Watch as the beauty products maker is in buy territory. ELF stock is in the 5% buy zone of a cup base, and hit a new high Wednesday before retreating amid the market sell-off.
The company makes and sells cosmetics and skin care products through retailers including Target, Ulta Beauty and various e-commerce sites. ELF, which stands for eyes, lips and face, boasts it can offer quality products at lower prices.
The beauty stock ranks No. 1 out of 41 stocks in the IBD cosmetics/personal care group. The group holds a middling 105th rank out of the 197 industry groups IBD follows, but that's up from 149th four weeks ago, according to MarketSmith data.
ELF Stock Hits A Buy Point
ELF stock jumped more than 8% and broke out of a cup base on Dec. 13, in heavier-than-average daily volume, hitting a 139.85 buy point. Shares are in the buy zone reaching to 146.84. ELF hit an all-time high on Wednesday and has rewarded investors with a more than 160% whopping gain this year.
The beauty stock started its ascent following the company's strong beat on its fiscal second-quarter earnings and sales estimates on Nov. 1. ELF stock clawed back from the bottom of the base on Oct. 31, and reclaimed its 50-day moving average on Nov. 15.
Earnings Explode Once Again
ELF Beauty continues to show impressive profit growth. Earnings grew 128% year over year during its fiscal second quarter. That followed 182% and 223% gains in the prior two quarters. Sales growth has been consistent, ranging from 76% to 78% in the last three quarters.
Quarterly gross margin increased to 71% from 65% in last year's quarter. That's mainly due to lower inventory adjustments, cost savings, product mix and lower transportation costs. Management also raised its full-year fiscal 2024 profit and revenue estimates in the report.
The beauty company now expects $48 million of sales coming from its Naturium skin care business that it acquired on Oct. 4, for $355 million in cash and company stock.
In turn, analysts recently raised estimates as shown by the green arrow next to the annual earnings estimates on the weekly MarketSmith page. Recent forecasts show robust 63% profit growth in fiscal 2024 and 14% in 2025.
Institutions Want A Piece Of The Action
ELF stock holds a high IBD Accumulation/Distribution Rating of A, indicating heavy institutional buying over the last 13 weeks. Another positive sign for the stock is the 1.9 up/down volume ratio. A reading above 1.0 indicates higher volume on up days than down days over the past 50 days.
Mutual funds own 67% of shares, with 738 owning ELF in September. That's up from 661 in June and 556 in March.
In addition, five names on the IBD Mutual Fund Index hold the stock. Four added or initiated positions in the September quarter. Holders include the Lord Abbett Developing Growth Fund and T. Rowe Price New Horizons Fund.
Lastly, ELF stock holds a best-possible 99 IBD Composite Rating, a 98 EPS Rating and a 97 Relative Strength Rating.
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