As of September 26, 2023, e.l.f. Beauty Inc (ELF, Financial) experienced a daily gain of 2.33% and a 3-month gain of 1.59%. The company's Earnings Per Share (EPS) stands at 1.77. However, the question remains: Is the stock significantly overvalued? This analysis provides a comprehensive evaluation of e.l.f. Beauty's financial performance and valuation to answer this question.
Company Overview
e.l.f. Beauty Inc is a leading cosmetic company based in the United States. The company offers a range of cosmetic accessories, including eyeliner, mascara, false eyelashes, lipstick, foundation, moisturizer, and cleanser, among others. Its products are marketed under the e.l.f. Cosmetics, W3LL PEOPLE, and Keys Soulcare brands. With a substantial presence in the US and international markets, the company generates maximum revenue from the US.
The company's stock price stands at $109.29 per share, with a market cap of $6 billion. However, the GF Value, an estimation of fair value, is only $58.48, indicating that the stock may be significantly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. The GF Value Line provides an overview of the fair value at which the stock should be traded. This measure is based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, the stock is considered overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher.
Based on this analysis, e.l.f. Beauty (ELF, Financial) appears to be significantly overvalued. Given this overvaluation, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Assessing the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. e.l.f. Beauty has a cash-to-debt ratio of 1.79, which outperforms 69.92% of companies in the Consumer Packaged Goods industry. The company's overall financial strength is rated 9 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies carries less risk, especially when a company has demonstrated consistent profitability over the long term. e.l.f. Beauty has been profitable 8 years over the past 10 years and has an operating margin of 15.96%, better than 86.69% of companies in the Consumer Packaged Goods industry.
The company's growth is another critical factor in its valuation. The 3-year average annual revenue growth of e.l.f. Beauty is 23.4%, ranking better than 85.84% of companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth rate is 15.6%, ranking better than 65.09% of companies in the same industry.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess its profitability. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, e.l.f. Beauty's ROIC is 25.38, and its cost of capital is 8.57.
Conclusion
In conclusion, e.l.f. Beauty's stock appears to be significantly overvalued. Despite the company's strong financial condition and fair profitability, its valuation suggests that future returns may be lower than its business growth. For more information about e.l.f. Beauty's financial performance, you can check out its 30-Year Financials here.
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