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Bull of the Day: e.l.f. Beauty (ELF)

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e.l.f. Beauty (ELF - Free Report) is a Zacks Rank #1 (Strong Buy) that operates as a cosmetic company. The company offers eye, lip, face, face, paw, and skin care products.

The stock has had an amazing run, up over 300% since June of 2022. The move started in the back half of last year, but continued in 2023, helping ELF up over 90% year to date.

The question for investors after this move is if there is any meat left on the bone. And if so, what are some good entry points for investors to get in.

About the Company

ELF was formerly known as J.A. Cosmetics Holdings and changed its name to e.l.f. Beauty in April 2016. The company was started in 2004 and is headquartered in Oakland, California.

The stock has a Zacks Style Score of “A” in Growth and “A” in Momentum. Value investors will shy away from this one as the Forward PE is 60. This gives the stock a Zacks Style Score of “F” in Value.

ELF employs over 300 employees and sells its products through national and international retailers and direct-to-consumer channels, which include e-commerce platforms.

Q1 Earnings Beat

In late May, ELF beat earnings by 110%. This was the ninth straight EPS beat that stretches back to 2021.

Looking at the quarter, the company reported EPS of $6.88 v the $6.76 expected. Revenues came in at $2.63B v the $2.61B and the company affirmed its outlook. Same Store Sales were up 9.3% and management cited the strength of the beauty category, business model, product line, and loyalty program as reasons for the outperformance.   

The company affirmed its FY23 EPS, SSS, capex, and store openings.

Merchandise inventories did increase, but management commented this was to support higher demand, product cost increases, 41 net new stores, new brand launches, and brand expansions. 

Analyst Estimates

Analysts loved the quarter and took their estimates and price targets higher.

Since earnings, estimates for the current quarter have gone from $0.47 to $0.56 or 19%. However, for the next quarter, we see only a 5% jump over that same time frame.

Looking at the current year, we see estimates heading 10% higher over the last month. Analysts have hiked from $1.62 to $1.78 since earnings were reported.  

For next year, numbers have been taken to $2.08 from $1.98 a month ago. This is a move of 5% to the upside.

Since earnings, multiple analysts have taken price targets higher for ELF:

JPMorgan Chase reiterated ELF with Overweight taking their price target to $102 from $87.

TD Cowen reiterated ELF with Market Perform, lifting their price target to $105 from $70.

DA Davidson maintained a Buy and raised the price target from $121 to $124.

The Technicals

The stock has gone up at a 45-degree angle since June of last year.

Recently making highs of $108.43, most of the short sellers have been taken out of the name. In fact, the short interest is only at 4% of the float. While the stock might go higher from here, at some point we will see a sell-off so let’s look at some buyable levels.

The $96 level is where the 21-day resides. If the recent highs hold, this level would align with a halfway-back retracement drawn from the pre-earnings levels to highs. If this spot were to fail, watch the $91 level, which is the 50-day moving average.

For those looking for a larger move, the 200-day is at $63. This is not likely unless we get a broad market move lower.

Bottom Line

Cosmetics have been one of the hottest segments of the market over the last year. The momentum is strong and ELF likely continues higher over the near term.

Its hard to chase at current levels, so investors should watch for buyable pullbacks to take advantage of the long-term trend.

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