e.l.f. Beauty, Inc. ELF is facing significant challenges, with its stock price plunging 54.2% over the past three months. This sharp fall has led to underperformance compared with the industry’s 21.7% decline, as well as the broader Zacks Consumer Staples sector’s growth of 2.4% and the S&P 500’s decrease of 3.9%. The downturn reflects a combination of broader market headwinds and specific issues within the company, raising concerns about its future prospects.

ELF’s Price Performance vs. Industry, S&P 500 & Sector

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Closing the trading session at $25.90 yesterday, e.l.f. Beauty’s stock stands closer to its 52-week low of $21.10 reached on Feb. 12. ELF is also trading below its 50 and 200-day moving averages, indicating potential weakness in the stock's momentum.

ELF Trades Below 50 & 200-Day Moving Averages

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Despite the significant decline in stock price, e.l.f. Beauty is still trading at a premium compared to its industry peers, which raises questions about its valuation amid the challenges it faces. The company is currently trading at a forward 12-month P/E ratio of 17.71, making its stock appear overvalued when compared to major competitors like Nu Skin Enterprises, Inc. NUS at 7.26, and Coty Inc. COTY at 11.89. Furthermore, e.l.f. Beauty’s Value Score of F adds to concerns regarding its future performance.

These factors lead to a critical question for investors: Is e.l.f. Beauty facing a temporary setback, or do they point to deeper issues within the company's position in the beauty market? As the company strives to overcome these challenges, it is essential for potential investors to closely monitor its strategy and future direction to assess its long-term investment potential.

Here’s Why ELF Stock is Losing Momentum

The beauty and cosmetics industry is navigating a challenging economic environment shaped by evolving consumer preferences, rising inflation, and cautious spending. As economic pressures grow, many brands, including e.l.f. Beauty, are encountering hurdles that could slow their growth. Despite its strong track record in the market, recent trends suggest that ELF’s momentum may be softening.

The company recently lowered its fourth-quarter fiscal 2025 sales guidance to a modest -1% to +2%, signaling a potential slowdown. Its January 2025 sales were weaker than expected, impacted by lower consumer spending and underwhelming product launches. At the same time, competition is intensifying. Established beauty giants like The Estee Lauder Companies EL continue to dominate, while indie brands attract consumers with niche offerings and innovative digital marketing. The rising demand for clean beauty and premium products is pushing consumers toward alternative brands, making it crucial for e.l.f. Beauty to differentiate itself.

To stay competitive, companies like e.l.f. Beauty are investing heavily in marketing, workforce expansion, and strategic acquisitions. However, these efforts come at a cost, especially in uncertain economic conditions. The company’s adjusted SG&A expenses climbed to 61% of net sales in the fiscal third quarter, up from 59% in the last year’s level, reflecting higher spending on marketing, operations, retail merchandising, and administrative costs. While these investments aim to strengthen the brand, rising operational expenses could pressure profitability — a key concern as sales growth moderates.

ELF’s Estimates: Is More Trouble on the Horizon?

The Zacks Consensus Estimate for e.l.f. Beauty’s earnings per share for the current and upcoming fiscal years has been revised downward over the past 30 days. This shift indicates a growing bearish outlook among analysts and highlights potential obstacles the company may face in meeting its profitability goals.

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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Can ELF’s Growth Efforts Ignite a Recovery?

e.l.f. Beauty is leveraging growth initiatives to spark a turnaround. The company continues to strengthen its brand through innovation and strategic expansion. Its skincare segment led by e.l.f. Skin and Naturium now represent 18% of total retail sales, doubling its penetration within the skincare market. The company is also expanding retail partnerships, securing increased shelf space in Target, Walmart, and Dollar General while maintaining the most productivity per square foot among major cosmetics brands. With a strong balance sheet and disciplined cost management, the company capitalizes on digital and international opportunities to position itself for long-term success in the competitive beauty market.

Here's How to Play ELF Stock

While e.l.f. Beauty has shown strong brand positioning and market share expansion, its recent stock decline, weakening sales momentum, and rising operational costs raise serious concerns. The company’s premium valuation compared with industry peers, coupled with declining earnings estimates and intensifying competition, suggests further downside risk. With profitability pressures mounting and macroeconomic challenges impacting consumer spending, ELF may struggle to justify its current valuation. Investors should approach with caution, as the company’s near-term outlook remains uncertain. At present, ELF carries a Zacks Rank #5 (Strong Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report

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e.l.f. Beauty (ELF) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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