Key Points
E.l.f Beauty shares have been volatile to start the year, but are up nicely.
The company has a huge opportunity ahead with the Rhode brand.
The stock is attractively valued at current levels.
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The stock of e.l.f Beauty (NYSE: ELF) has been on a roller-coaster ride this year. It started the year strong, only to see its shares start to retreat in late January.
A strong earnings report in early February sent its shares immediately soaring, but the stock quickly reversed course and ended decidedly lower the session following the company's earnings announcement. The stock has since rebounded once again, and now is up around 22% year to date as of this writing.
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The question, though, is whether the stock has enough gas in the tank to hit $100, which would be about another 7.5% gain from here.
Image source: Getty Images.
A huge distribution opportunity
E.l.f. has been the most disruptive company in the mass market cosmetics space, with its namesake brand consistently taking market share. It's done this through a combination of social media marketing, popular products, and distribution and shelf gains. The company is still gaining shelf space, and its namesake brand still has a nice international opportunity in front of it. Meanwhile, lower tariffs on Chinese goods could be a big boost to its gross margin and thus earnings.
That said, the company's biggest opportunity is with its recently acquired Rhode brand. Created by celebrity Hailey Bieber, Rhode burst onto the scene as a premium skincare brand, racking up more than $200 million in sales within three years with little paid marketing and just a handful of products sold through its website. The company has a huge opportunity to gradually expand Rhode's product assortment and increase its distribution. The brand recently launched at LVMH's Sephora in several countries with strong sales, but that should just be the start of it getting into more retail outlets.
Given Rhode's strong performance, e.l.f. raised its revenue guidance for the full year fiscal 2026 (ending March), taking it from 18% to 20% growth to 22% to 23%. The company originally projected that Rhode would contribute $200 million in sales, but it upped that expectation to between $260 million and $265 million. Notably, e.l.f. management has historically been very conservative with guidance, so there is the potential that its forecast proves to be conservative.
From a valuation perspective, e.l.f. trades at a forward price-to-earnings ratio (P/E) of below 26 times based on next fiscal year's earnings estimates and a price/earnings-to-growth (PEG) ratio) of just 0.6 (with a PEG below 1 typically considered undervalued). Given that valuation and the growth opportunity in front of it with both its namesake brand and Rhode, the growth stock hitting $100 this year looks like a strong possibility. Meanwhile, $110 certainly doesn't look out of the question, as it could carry a 30 times P/E at that price.
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Geoffrey Seiler has positions in e.l.f. Beauty. The Motley Fool has positions in and recommends e.l.f. Beauty. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
