What Happened?
Shares of cosmetics company e.l.f. Beauty (NYSE: ELF) jumped 7.7% in the morning session after it received a key upgrade from investment bank Morgan Stanley, which expressed renewed confidence in the company's performance. The investment bank upgraded the stock from an “Equal-Weight” to an “Overweight” rating and raised its price target to $134 from $114. Morgan Stanley cited an “attractive entry point” for investors after the shares lost half their value from last year's peak. The bank argued that Wall Street is underestimating the profit boost from recent price increases and the acquisition of Rhode, a fast-growing cosmetics brand. This positive sentiment is echoed by other firms; Deutsche Bank also recently upgraded the stock to a "buy" rating, and Goldman Sachs maintained its "buy" rating while raising its price target to $137. The upgrades follow a period of stock volatility after the company's fiscal first-quarter report.
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What Is The Market Telling Us
e.l.f. Beauty’s shares are extremely volatile and have had 48 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 3 days ago when the stock gained 3.9% on the news that Deutsche Bank upgraded the stock to a 'Buy' rating from 'Hold'. The upgrade came after the stock dropped 9.5% on Thursday, a price level Deutsche Bank called "an attractive entry point with compelling 20%+ potential upside," while maintaining its $121 price target. The prior day's decline followed the company's first-quarter earnings report. While e.l.f. Beauty beat earnings expectations, with revenue growing 9% year-over-year to $353.7 million, investors were concerned after executives pulled the full-year forecast due to uncertainty over Chinese tariffs. The upgrade suggests a belief in the company's fundamentals despite the market's recent reservations.
e.l.f. Beauty is down 8.9% since the beginning of the year, and at $112.06 per share, it is trading 34.4% below its 52-week high of $170.95 from August 2024. Investors who bought $1,000 worth of e.l.f. Beauty’s shares 5 years ago would now be looking at an investment worth $5,855.
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