E.l.f. Beauty Should Continue to Gain Market Share, Analyst Says. Buy the Stock.

Shares of e.l.f. were up 5% to $101.34. The stock has climbed 84% this year.

In a research note this week, Helgans cited several reasons why she believes now is the time to buy the stock, including demand strength, benefits from merger and acquisition activity, international expansion, and a valuation pullback.

The beauty category has remained resilient despite consumer weakness. This strength was evident in the company’s fiscal first-quarter financial results in August. E.l.f. posted earnings and revenue far above Wall Street expectations and raised its fiscal-year revenue outlook.

“Underlying demand remains robust,” Helgans wrote. “…ELF should continue to gain share over the next few years, especially as consumers are becoming more agnostic to price and continue to blend makeup routines across price points.”

Also in August, e.l.f. acquired skin care brand Naturium. Helgans noted that this move was a positive because the company relies on bringing new items to the market to keep customers interested in the quickly evolving makeup industry.

“Skincare will account for ~18% of total sales (vs. ~9% today),” Helgans wrote. “This diversifies the portfolio and balances out any rotation between skin and cosmetic cycles.”

Helgans also believes there is more room for e.l.f. to grow internationally, with major opportunities in Europe. She wrote that Europe’s color cosmetics industry is comparable to the U.S., and if e.l.f. reaches its current market share held here in Western Europe, she believes it would add about $650 million in additional retail sales.

The analyst chose to upgrade the stock now after it has declined in the past weeks, bringing the valuation down with it. E.l.f. trades at around 37 times forward earnings, which is a drop from its high of around 63 times forward earnings from July.

Write to Angela Palumbo at [email protected]