International Expansion And Digital Channels Like Amazon Will Strengthen Future Market Position

Key Takeaways

• Expansion in digital channels, international markets, and increased retail partnerships is set to improve market share and revenue consistency.
  
• Focus on Color Cosmetics, Skin Care, and innovative product launches strengthens market penetration and boosts margins, despite industry challenges.
  
• Consumer consumption slowdown and foreign currency losses could pressure revenue, while tariffs and slower product sales challenge margins and market confidence.

Catalysts

Provides cosmetic and skin care products under the e.l.f.

• e.l.f. Beauty continues to prioritize digital growth with the expansion of its digital channels, such as Amazon, and enhancements to its loyalty program and mobile app, which could drive revenue growth and improve market share.
  
• The expansion into international markets is contributing significantly to growth, with a presence in 15 countries and plans for further expansion, which is poised to increase revenue and reduce reliance on the U.S. market.
  
• e.l.f. Beauty's strategic focus on Color Cosmetics and Skin Care, including acquisitive growth through Naturium, presents an opportunity to increase market penetration and leverage high-margin segments, thereby boosting both revenue and margins.
  
• The company’s increased retail partnerships, including expansion in Target, Walgreens, and Dollar General, could drive incremental sales and enhance revenue consistency through diversification.
  
• Despite category headwinds, e.l.f. Beauty maintains a strategy centered on innovative product launches and disruptive marketing, which have consistently driven market share gains and could enhance long-term earnings and margins.

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

Assumptions

• Analysts are assuming e.l.f. Beauty's revenue will grow by 9.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 16.4% in 3 years time.
• Analysts expect earnings to reach $276.9 million (and earnings per share of $5.12) by about April 2028, up from $98.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.7x on those 2028 earnings, down from 35.6x today. This future PE is lower than the current PE for the US Personal Products industry at 21.3x.
• Analysts expect the number of shares outstanding to grow by 0.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.04%, as per the Simply Wall St company report.

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

Risks

• The softer-than-expected consumer consumption trends starting in January 2025, potentially due to decreased social conversation around beauty and lower engagement on platforms like TikTok, may adversely affect revenue growth.
  
• The decline in the overall beauty category and lapping of the previous year's successful product launches like the viral lip oil could challenge sustaining high sales growth, impacting revenue and market share.
  
• Initial slower-than-expected sales from new product launches for Spring 2025 may indicate issues with product acceptance or timing, potentially affecting future earnings and market confidence.
  
• The impact of foreign currency fluctuations, as evidenced by an unanticipated foreign currency loss of approximately $7 million, could pressure net income and adjusted EBITDA.
  
• The introduction of new tariffs on goods imported from China poses a risk to gross margins if the company is unable to fully offset these costs with supplier concessions or price increases.

Valuation

• The analysts have a consensus price target of $82.071 for e.l.f. Beauty based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $120.0, and the most bearish reporting a price target of just $59.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $276.9 million, and it would be trading on a PE ratio of 20.7x, assuming you use a discount rate of 7.0%.
• Given the current share price of $62.17, the analyst price target of $82.07 is 24.2% higher.
• 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.