e.l.f. Beauty (ELF) makes and sells value-oriented, high-quality cosmetics and skin care products. Products are vegan and paraben- and cruelty-free. It’s a solid buy here, writes Tyler Laundon, editor of Cabot Early Opporunities.

The company has four brands: e.l.f. Cosmetics, e.l.f. SKIN, W3LL People and Keys Soulcare. While it’s not the biggest cosmetics firm out there, it’s also no slouch, having around 9% market share in the U.S. ELF leads in some categories, including primers, brushers, concealers, brows and sponges, which collectively make up over half of total sales. Roughly 13% of sales come from outside of the U.S.

The company is going after a huge market that primarily targets Gen Z and young millennials, though it does capture sales from all age groups and income brackets. It’s mainly selling through the major retailers, including Target (TGT), Walmart (WMT), Ulta Beauty (ULTA) and Shoppers Drug Mart (in Canada). The company also does a small portion of sales direct-to-consumer (DTC).

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Analysts believe ELF has around 13% market share at Target. That’s significantly higher than its 9% U.S. market share. And it’s one of the reasons analysts are so bullish on the stock.

It’s not a big leap to think that the same forces that have helped ELF gain outsize market share at Target can’t materialize at Walmart and Ulta. Especially given management’s recent comments about new distribution gains, innovative new products launching this spring, market share gains in skincare, mascara and lip color, and leading digital engagement with its target market.

Growth has been terrific. In fiscal 2022 (ended last March) revenue was up 23% to $392 million, and EPS was up 18% to $0.84. In the most recent quarter, revenue grew 49% to $146.5 million. EPS grew by 100% to $0.48. Both results beat expectations by a wide margin.

The company’s fiscal year ends in March, so the next quarterly report (due May 24) will be the Q4 fiscal 2023 report. Analysts currently see revenue up 46% to $154 million and EPS up 46% to $0.19.

But it’s really a look toward fiscal 2024 that’s going to determine how ELF stock performs. On that front, management is typically conservative with guidance, whereas analysts are turning increasingly bullish.

Consensus estimates are still on the conservative side, calling for fiscal 2024 revenue up 15% to $630 million and EPS up 13% to $1.61. But it’s entirely feasible revenue growth tops 20% ($654 million or more) and EPS surpasses $1.73.

Recommended Action: Buy ELF.

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