China Reliance And Tariffs Will Strain Future Beauty Prospects

Key Takeaways

• Heavy reliance on Chinese production and tariffs, as well as increased international expansion, heighten exposure to regulatory, geopolitical, and operational risks, threatening profitability.
  
• Rising competition, shifting consumer expectations, and rapid innovation cycles could erode brand loyalty, increase costs, and compress margins amid a challenging market environment.
  
• Broadening brand portfolio, digital engagement, and global expansion strategies position e.l.f. Beauty for sustained growth, resilience, and increased market share despite external economic pressures.

Catalysts

Provides cosmetic and skin care products worldwide.

• The heavy dependence on China for approximately 75% of global production exposes e.l.f. Beauty to elevated regulatory and geopolitical risks, with the newly increased U.S. tariffs potentially adding roughly $50 million annually to cost of goods sold; this threatens gross margins and profitability over the medium to long term, particularly if tariff rates increase further or mitigation strategies prove less effective than anticipated.
  
• Intensifying consumer demand for highly personalized and AI-driven beauty experiences could outpace e.l.f. Beauty's largely mass-market, value-focused positioning, eroding its ability to maintain strong brand loyalty and driving elevated customer acquisition costs; this is likely to hinder top-line growth and eventually put pressure on market share.
  
• The rapid innovation cycle and accelerated SKU launches, while previously supporting momentum, now risk inflating research and development and marketing expenses without guaranteed new category success, potentially leading to declining operating margins and earnings volatility should product launches fail to resonate with a maturing customer base.
  
• Continued aggressive international expansion not only increases exposure to volatile foreign currency movements and unfamiliar regulatory environments, but also adds significant operational complexity; these factors are likely to result in increased SG&A expenses and may jeopardize stable earnings growth as fixed costs rise and execution risks mount in less established markets.
  
• The overall beauty industry is experiencing rising competition from direct-to-consumer indie players and influencer-driven microbrands, which fragment consumer attention and purchasing; this trend, coupled with inflationary pressures on raw materials and packaging, may compress e.l.f. Beauty's pricing power, decrease revenue growth potential, and drive down net margins if the company is forced to absorb higher costs without the ability to pass them on to consumers.

e.l.f. Beauty Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on e.l.f. Beauty compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming e.l.f. Beauty's revenue will grow by 19.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 8.5% today to 12.9% in 3 years time.
• The bearish analysts expect earnings to reach $287.4 million (and earnings per share of $4.72) by about July 2028, up from $112.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 23.1x on those 2028 earnings, down from 54.9x today. This future PE is greater than the current PE for the US Personal Products industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.0%, as per the Simply Wall St company report.

e.l.f. Beauty Future Earnings Per Share Growth

Risks

• e.l.f. Beauty has demonstrated exceptional and sustained revenue growth, reporting its 25th consecutive quarter of net sales and market share gains, consistently outperforming peers and achieving compounded growth in both core and international markets, which suggests strong long-term top-line resilience.
  
• The company's multi-brand portfolio-including recent high-growth acquisitions like Naturium and the announced acquisition of rhode-enhances category diversification, provides new growth vectors, and supports sustainable earnings expansion through both organic and M&A-driven initiatives.
  
• Robust digital-first marketing, high ROI on consumer engagement, and broad community reach among Gen Z, Millennials, and Gen Alpha imply that e.l.f. can maintain or even expand margin and revenue advantages as consumer trends favor inclusivity and value-driven brands.
  
• Ongoing global supply chain optimization and deliberate international expansion-specifically rapid growth in markets like Europe and Canada, alongside strategic partnerships such as with Kruidvat and Rossmann-enable e.l.f. to steadily grow its total addressable market and mitigate tariff-related risks, supporting future revenue and operating leverage.
  
• The integration of rhode provides a high-growth DTC brand with significant international and retail expansion opportunities (notably through Sephora), likely to be accretive to top-line growth and adjusted EBITDA margins, helping offset potential short-term gross margin pressures from tariffs and increasing the company's long-term earnings potential.

Valuation

• The assumed bearish price target for e.l.f. Beauty is $96.94, which represents two standard deviations below the consensus price target of $128.96. This valuation is based on what can be assumed as the expectations of e.l.f. Beauty's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $150.0, and the most bearish reporting a price target of just $95.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.2 billion, earnings will come to $287.4 million, and it would be trading on a PE ratio of 23.1x, assuming you use a discount rate of 7.0%.
• Given the current share price of $108.51, the bearish analyst price target of $96.94 is 11.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.