e.l.f. Beauty Inc (ELF, Financial) experienced a daily loss of -5.2% and a 3-month loss of -7.15%. With an Earnings Per Share (EPS) of 1.77, the question arises: is this stock significantly overvalued? This article provides a comprehensive valuation analysis to answer this question. Read on for an in-depth exploration of e.l.f. Beauty's value.
Company Overview
e.l.f. Beauty Inc is a leading cosmetic company based in the United States. The company offers a wide range of cosmetic accessories including eyeliner, mascara, false eyelashes, lipstick, foundation, moisturizer, cleanser, and other tools. These products, marketed under the e.l.f. Cosmetics, W3LL PEOPLE, and Keys Soulcare brands, are sold through its stores and e-commerce channels. The company generates most of its revenue from the US.
At a stock price of $102.58 per share, e.l.f. Beauty has a market cap of $5.60 billion, which seems significantly overvalued when compared to its GF Value of $59.44. This discrepancy prompts a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived by considering three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
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. Based on this analysis, e.l.f. Beauty (ELF, Financial) appears to be significantly overvalued.
Considering that e.l.f. Beauty is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Investing in companies with poor financial strength poses a high risk of permanent capital loss. To avoid this, it's essential to review a company's financial strength before purchasing shares. e.l.f. Beauty has a cash-to-debt ratio of 1.79, which ranks better than 69.73% of 1784 companies in the Consumer Packaged Goods industry. This indicates that the financial strength of e.l.f. Beauty is strong.
Profitability and Growth
Consistent profitability over the long term reduces the risk for investors. e.l.f. Beauty has been profitable for 8 out of the past 10 years. It has an operating margin of 15.96%, which ranks better than 86.86% of 1827 companies in the Consumer Packaged Goods industry. This indicates fair profitability.
Growth is a crucial factor in a company's valuation. e.l.f. Beauty's 3-year average annual revenue growth is 23.4%, which ranks better than 85.56% of 1710 companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth rate is 15.6%, which ranks better than 65.17% of 1516 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the 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. e.l.f. Beauty's ROIC is 25.38, and its WACC is 8.63, indicating that it is creating value for its shareholders.
Conclusion
In summary, e.l.f. Beauty's stock appears to be significantly overvalued. Despite its strong financial condition and fair profitability, its growth ranks better than only 65.17% of companies in the Consumer Packaged Goods industry. To learn more about e.l.f. Beauty's financials, check out its 30-Year Financials here.
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