e.l.f. Beauty, Inc.'s (NYSE:ELF) 35% Jump Shows Its Popularity With Investors

e.l.f. Beauty, Inc. (NYSE:ELF) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 99%.

Since its price has surged higher, given around half the companies in the United States' Personal Products industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider e.l.f. Beauty as a stock to avoid entirely with its 11.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for e.l.f. Beauty

How Has e.l.f. Beauty Performed Recently?

e.l.f. Beauty certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on e.l.f. Beauty will help you uncover what's on the horizon.

How Is e.l.f. Beauty's Revenue Growth Trending?

e.l.f. Beauty's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 77% last year. The latest three year period has also seen an excellent 222% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 20% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.0% per year, which is noticeably less attractive.

With this information, we can see why e.l.f. Beauty is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does e.l.f. Beauty's P/S Mean For Investors?

Shares in e.l.f. Beauty have seen a strong upwards swing lately, which has really helped boost its P/S figure. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that e.l.f. Beauty maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Personal Products industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware e.l.f. Beauty is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on e.l.f. Beauty, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com