On September 19, 2023, e.l.f. Beauty Inc (ELF, Financial) experienced a daily loss of 8.55%, with a three-month gain of 8.17%. The company's Earnings Per Share (EPS) stands at 1.77. But the question on everyone's mind is: Is the stock significantly overvalued? In this article, we will analyze e.l.f. Beauty's valuation, providing you with a comprehensive understanding of its intrinsic worth. So, let's dive in.
Company Profile: e.l.f. Beauty Inc (ELF, Financial)
e.l.f. Beauty Inc is a renowned cosmetics company based in the United States. The company's product range includes eyeliner, mascara, false eyelashes, lipstick, foundation, moisturizer, cleanser, and other beauty tools. These products are marketed under the e.l.f. Cosmetics, W3LL PEOPLE, and Keys Soulcare brands, and are available through physical stores and e-commerce channels. The majority of the company's revenue is generated from the US.
With a current share price of $112.48, e.l.f. Beauty has a market cap of $5.80 billion. However, our analysis suggests that the company's fair value (GF Value) is $58.22, indicating that the stock might be significantly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line is a graphical representation of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
e.l.f. Beauty's stock price is significantly above the GF Value Line, suggesting that it is overvalued. Consequently, 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 poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to assess a company's financial strength before deciding to buy its stock. A great starting point for understanding a company's financial strength is to look at its cash-to-debt ratio and interest coverage. e.l.f. Beauty has a cash-to-debt ratio of 1.79, which ranks better than 70.06% of 1800 companies in the Consumer Packaged Goods industry. GuruFocus ranks e.l.f. Beauty's overall financial strength at 9 out of 10, indicating strong financial health.
Profitability and Growth of e.l.f. Beauty
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. e.l.f. Beauty has been profitable 8 out of the past 10 years. Over the past twelve months, the company had a revenue of $672.60 million and Earnings Per Share (EPS) of $1.77. Its operating margin is 15.96%, which ranks better than 87.05% of 1830 companies in the Consumer Packaged Goods industry. Overall, the profitability of e.l.f. Beauty is ranked 5 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. e.l.f. Beauty's 3-year average revenue growth rate is better than 85.86% of 1719 companies in the Consumer Packaged Goods industry. Its 3-year average EBITDA growth rate is 15.6%, ranking better than 65.14% of 1526 companies in the same industry.
ROIC vs WACC
A company's profitability can also be evaluated by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, e.l.f. Beauty's ROIC was 25.38 while its WACC was 8.41.
Conclusion
In conclusion, e.l.f. Beauty's stock appears to be significantly overvalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 65.14% of 1526 companies in the Consumer Packaged Goods industry. To learn more about e.l.f. Beauty stock, you can check out its 30-Year Financials here.
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