How Should Investors View e.l.f. Beauty After Strong Three Year Gain and Recent Price Dip?

Thinking about what to do with e.l.f. Beauty stock right now? You’re definitely not alone. With shares closing at $137.32, investors are weighing up whether the company’s next move is a breakout or another test of nerves. If you zoom out, the story gets even more interesting: the stock has soared 254.4% over the past three years, and an eye-popping 632.4% in the last five. That kind of momentum doesn't go unnoticed, and it certainly raises questions about growth potential, risk, and, of course, valuation.

But there’s been some recent turbulence too. After racking up a strong 16.2% gain in the last month, e.l.f. Beauty pulled back 4.9% over the past week. Even with that dip, the year-to-date return stands at a robust 11.7%, and the one-year mark shows an impressive 22.8% climb. Much of this excitement is tied to the company’s ability to continuously innovate and capture market share as consumer preferences evolve. Broader market optimism for beauty and personal care stocks has also played a part, boosting perceptions of industry growth and fueling both reward and risk in the process.

So is e.l.f. Beauty a bargain or has the price overshot reality? The company gets a valuation score of 2 out of 6, meaning it’s only considered undervalued by two major valuation checks. Next, let’s dig into what those checks actually look like, then set up an even sharper way to judge the stock’s value—a method you won’t want to miss.

e.l.f. Beauty scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: e.l.f. Beauty Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's true worth by projecting its future cash flows and discounting them back to today’s value. For e.l.f. Beauty, the DCF model uses recent Free Cash Flow (FCF) data as a foundation. Currently, FCF is sitting at $144.5 Million, and forecasts estimate how quickly that cash flow will grow over time.

Analysts estimate that e.l.f. Beauty’s annual FCF will climb to $401 Million by 2028, with projections extrapolated even further out to 2035, reaching approximately $905 Million. These projections combine both analyst estimates for the next five years and longer-term growth modeled by Simply Wall St. The method used here is a "2 Stage Free Cash Flow to Equity" model, which balances expected growth and more mature, stable periods.

Based on these projections, the DCF model calculates an intrinsic value for e.l.f. Beauty stock of $223.02 per share. Compared to the current share price of $137.32, this suggests the stock is trading at a significant 38.4% discount to its perceived fair value, pointing to meaningful upside potential if those cash flow forecasts play out.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for e.l.f. Beauty.

Our Discounted Cash Flow (DCF) analysis suggests e.l.f. Beauty is undervalued by 38.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: e.l.f. Beauty Price vs Earnings

For profitable companies like e.l.f. Beauty, the Price-to-Earnings (PE) ratio is a widely used tool to gauge valuation. The PE multiple helps investors understand how much they are paying for each dollar of current earnings, making it a solid yardstick for companies consistently delivering positive profits.

Of course, the “right” PE ratio is shaped by more than just profits. Growth expectations play a massive role. High-growth companies often trade at steeper PE multiples thanks to their future potential, while slower-growth or riskier companies tend to have lower ratios. Simply put, a higher PE might be warranted for firms with rapid earnings growth and lower risk, and unjustified for those with uncertain prospects.

Right now, e.l.f. Beauty trades at a lofty PE of 83.2x. That is well above both the industry average of 23.0x and its peer group’s 23.5x. That said, not all companies warrant the same multiple even within the same industry. To provide a tailored benchmark, Simply Wall St calculates a proprietary “Fair Ratio.” For e.l.f. Beauty, that is 29.0x. This Fair Ratio goes a step further than standard comparisons, as it considers the company’s growth outlook, risk profile, profit margins, market capitalization, and sector characteristics. By weighing these specifics, it yields a more nuanced and precise measure of fair value.

Comparing e.l.f. Beauty’s current PE of 83.2x to its Fair Ratio of 29.0x, the stock appears to be trading well above what would be expected given its fundamentals. This strongly suggests that the shares, at current levels, are overvalued based on earnings.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your e.l.f. Beauty Narrative

Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is your personal investment story for a company. It connects your understanding of the brand and industry with your own assumptions about future growth, profit margins, and what the business is really worth. Instead of just relying on financial ratios or analyst consensus, Narratives put your perspective front and center. They link the company’s story to a forecast of its future financials, and then to a fair value tailored to your view.

With Narratives, you can use easy-to-edit templates on Simply Wall St’s Community page, where millions of investors already share their outlooks and see how their beliefs measure up. Narratives update automatically as new news or earnings come in, so your viewpoint and Fair Value are always up to date and help you decide whether to act when prices move. For e.l.f. Beauty, for example, the most optimistic investor might see international expansion driving a Fair Value as high as $165.00, while a more cautious view, worried about competition and supply risks, marks it down to just $112.00. Narratives let you compare and refine these perspectives, making smarter, more personalized investment decisions.

Do you think there's more to the story for e.l.f. Beauty? Create your own Narrative to let the Community know!

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.

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