1 Growth Stock Down 30% To Buy Right Now

Back in June, elf Beautyhis (ELF -0.19%) the stock closed at a record high of $218 per share. This marked a 1,353% gain from its IPO price of $15 in less than eight years. Instead of chasing high end consumers like L’oreal and Estee Lauder Face, the American cosmetics maven, has carved out a high-growth niche for itself by targeting younger shoppers with discount products, online sales and smart social media campaigns. It has also sold its products to more retailers, expanded internationally and acquired skincare brand Naturium last October.

But as of this writing, elf Beauty stock has retreated about 30% from its all-time high. Most of that decline came after it reported its fiscal first quarter 2025 report on Aug. 8. Although it saw a decline in earnings, it followed with a disappointing outlook for the rest of the year. However, I believe this pullback could represent a promising buying opportunity for patient investors.

Image source: Getty Images.

How fast does Elf Beauty grow?

From fiscal 2019 to fiscal 2024 (which ended in March), elf Beauty’s revenue grew at a compound annual growth rate (CAGR) of 31%. Its annual gross margin increased from 61% to 71%, while its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) grew at a CAGR of 30%. It also became profitable on a generally accepted accounting principles (GAAP) basis in FY2020, and its net profit grew at a CAGR of 48% from FY2020 to FY2024.

Data source: elf Beauty.

Like many of its peers in the industry, elf suffered a slowdown during the first part of the pandemic as people bought fewer cosmetics. However, over the past four fiscal years, its top-line growth has accelerated again and its margins have expanded.

But at the time of the company’s fiscal Q1 report, it forecast revenue to grow 25% to 27% in fiscal 2025 and adjusted EBITDA to grow 27% to 28%. Those updated estimates were both higher than the guidance it gave in the fourth quarter, but they still imply that its growth will cool significantly over the next few quarters. The company’s acquisition of Naturium last year also suggests it is moving to pursue inorganic growth as organic growth slows.

The days of high growth are not over yet

That forecast slowdown rattled the bulls, but the company still has plenty of irons in the fire. Its international revenue grew 91% year over year in the fiscal first quarter, but that business segment accounted for just 16% of the top line. The company is gaining momentum in Canada, the UK, the Netherlands and Italy, and its international expansion efforts could gradually reduce reliance on its maturing US market.

On the earnings call, CEO Tarang Amin said its global cosmetics peers already generate more than 70% of their sales internationally. Elf could still have plenty of room to grow in countries like France, Saudi Arabia and Australia.

The company’s acquisition of Naturium diversifies its portfolio and broadens its reach beyond the elf’s core market of Gen Z women. Naturium’s skin care products are more expensive and more popular with millennials. Also, about 40% of its users are male.

finally, Aimelf’s longest-running retail partner, expects its own sales to stabilize this year after a slowdown in 2023. Elf Beauty has been the top cosmetics brand at Target for six consecutive quarters, and its retail share increased from almost 13% to over 20. % during that period. Therefore, Target’s stabilization could boost elf sales in the US.

It seems reasonably priced relative to its growth

From fiscal 2024 to fiscal 2027, analysts expect Elf’s revenue to grow at a CAGR of 21% as adjusted EBITDA grows at a CAGR of 25%. With an enterprise value of $8.6 billion, the company still looks reasonably valued relative to those estimates at 6 times this fiscal year’s sales and 28 times adjusted EBITDA. It also recently approved a $500 million share buyback plan.

Growth investors may be disappointed by the elf’s recent slowdown, but its stock may still have plenty of upside potential. Investors who buy it while the bulls look the other way could be well rewarded over the next few years.