What Happened?

Shares of cosmetics company e.l.f. Beauty (NYSE:ELF) jumped 5.2% in the afternoon session after Morgan Stanley analyst Dara Mohsenian upgraded the stock from Hold to Buy and raised the price target from $139 to $153. The new price target implied a potential 15% upside from where shares traded before the upgrade was announced. The analyst cited several factors for the upgrade, including ELF's "compelling valuation" amid the stock's recent correction and growth in international markets.

After the initial pop the shares cooled down to $130.65, up 4.6% from previous close.

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What The Market Is Telling Us

e.l.f. Beauty’s shares are extremely volatile and have had 37 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 2 months ago when the stock gained 21.1% on the news that the company reported strong third-quarter earnings, which blew past analysts' revenue, EBITDA, and EPS expectations. Sales were driven by market share gains in the US and a 91% year on year growth in the international market. ELF expanded its footprint into new markets like Germany, and also increased distribution in existing markets like Canada and the UK. Digital sales are also contributing nicely to growth, rising 40% year on year, supported by its Beauty Squad loyalty program, which has 5.3 million members. As a result of the improved performance during the quarter, the company was able to comfortably raise its revenue and EBITDA guidance for the full year. Overall, we think this was an impressive quarter.

e.l.f. Beauty is up 6.2% since the beginning of the year, but at $130.65 per share, it is still trading 40.1% below its 52-week high of $218 from June 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 $8,489.

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