With a daily gain of 3.04%, a 3-month gain of 33.46%, and an Earnings Per Share (EPS) of 1.77, e.l.f. Beauty Inc (ELF, Financial) seems to be on a roll. But is it overvalued? This analysis aims to answer this question by delving into the company's financials and intrinsic value. Read on to gain a deeper understanding.
Company Introduction
e.l.f. Beauty Inc is a leading cosmetic company based in the United States. It offers a range of cosmetic accessories for women, including eyeliner, mascara, false eyelashes, lipstick, foundation, moisturizer, cleanser, and other tools. These products are marketed under the e.l.f. Cosmetics, W3LL PEOPLE, and Keys Soulcare brands, and are sold through its stores and e-commerce channels. With the majority of its revenue generated from the US, e.l.f. Beauty (ELF, Financial) has a current stock price of $137.85 per share and a market cap of $7.50 billion.
Understanding the GF Value
The GF Value is a proprietary valuation measure that estimates a stock's fair value. This is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, its future return will likely be higher.
e.l.f. Beauty (ELF, Financial) is believed to be significantly overvalued based on the GF Value calculation. As such, the long-term return of its stock is likely to be much lower than its future business growth.
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Assessing e.l.f. Beauty's Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. e.l.f. Beauty has a cash-to-debt ratio of 1.79, ranking better than 70.07% of companies in the Consumer Packaged Goods industry. Based on this, GuruFocus ranks e.l.f. Beauty's financial strength as 9 out of 10, indicating a strong balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. e.l.f. Beauty has been profitable 8 over the past 10 years. With a revenue of $672.60 million over the past twelve months and an Earnings Per Share (EPS) of $1.77, its operating margin is 15.96%, ranking better than 86.85% of companies in the Consumer Packaged Goods industry.
One of the most important factors in the valuation of a company is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. e.l.f. Beauty's average annual revenue growth is 23.4%, ranking better than 86.05% of companies in the industry. Its 3-year average EBITDA growth is 15.6%, ranking better than 65.15% of companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. For the past 12 months, e.l.f. Beauty's ROIC is 25.38, and its WACC is 8.37, indicating a healthy return on invested capital.
Conclusion
In conclusion, e.l.f. Beauty (ELF, Financial) is believed to be significantly overvalued. Despite its strong financial condition and fair profitability, its current stock price exceeds its intrinsic value. However, its growth ranks better than 65.15% of companies in the Consumer Packaged Goods industry. For a more detailed analysis of e.l.f. Beauty stock, check out its 30-Year Financials here.
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