What Happened?
Shares of cosmetics company e.l.f. Beauty (NYSE: ELF) jumped 3.9% in the morning session after 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.
After the initial pop the shares cooled down to $102.32, up 2.4% from previous close.
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What Is The Market Telling Us
e.l.f. Beauty’s shares are extremely volatile and have had 50 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 biggest move we wrote about over the last year was 6 months ago when the stock dropped 27.4% on the news that the company reported disappointing fourth-quarter results. Its EPS and EBITDA missed. Due to weak demand trends observed earlier in the year, it lowered its full-year revenue, EPS, and EBITDA guidance, sending shares lower. On the other hand, e.l.f. Beauty blew past analysts' revenue expectations this quarter, but markets are forward looking, and may likely raise concerns about the revised growth forecast. Overall, this was a weak quarter. Following the results, Morgan Stanley downgraded the stock from Buy to Hold adding "We are downgrading ELF to Equal-weight post Q3 results last night, which were overshadowed by ELF lowering implied Q4 guidance significantly, confirming January US scanner data weakness.".
e.l.f. Beauty is down 16.8% since the beginning of the year, and at $102.32 per share, it is trading 45.6% below its 52-week high of $187.95 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 $5,108.
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