What Happened?

Shares of cosmetics company e.l.f. Beauty (NYSE:ELF) fell 27.4% in the pre-market session after 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.".

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What The Market Is Telling Us

e.l.f. Beauty’s shares are extremely volatile and have had 45 moves greater than 5% over the last year. But moves this big are rare even for e.l.f. Beauty and indicate this news significantly impacted the market’s perception of the business. 

The previous big move we wrote about was 17 days ago when the stock dropped 5.9% on the news that research by Morgan Stanley analyst Dara Mohsenian revealed weak sales trends for the company (ELF). The research revealed that U.S. scanner sales growth "slowed to 5.5% year over year in the last two weeks, including Amazon first party, and were down 1.9% year over year in the last week." The analyst blamed the weakness partly "on the timing of the Martin Luther King Jr. Day and the LA wildfires."

e.l.f. Beauty is down 41.6% since the beginning of the year, and at $71.70 per share, it is trading 67.1% 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 $3,786.

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