Activist Eyes e.l.f. Beauty

09/26/2018 5:00 am EST


Briton Ryle

Editor, The Wealth Advisory

Our investment in e.l.f. Beauty (ELF) has been disappointing; but we've been getting a wave of good news over the past few weeks. And it's all coming to a head now, suggests growth stock expert Brit Ryle, editor of The Wealth Advisory.

The company develops, markets, and sells beauty cosmetic products in face makeup, eye makeup, lip products, nail products, cosmetics sets and kits categories, and also skin care.

Toward the end of July, ELF shares took a massive hit along with the rest of the sector. Investors were scared by stagnant sales numbers and dumped shares en masse.

Then bolder investors took another look at the company and realized that this was a baby getting tossed out with the bathwater. e.l.f. Beauty still had great potential. And the price was too good to pass up. So, buyers swooped in.

But it's the most recent news that has me the most excited. ELF has an activist investor. And it's getting more active by the day. Activist hedge fund Marathon Partners owns an 8.5% stake in ELF. And it's not happy with the way management has been running the company. The fund is calling for e.l.f. to either put itself up for sale or refocus on its core business in a cost-cutting effort.

And e.l.f. Beauty's management is listening. Management recently said it would be happy to discuss all options to maximize shareholder value. And that includes a sale to a larger operation. Either way it works out will be good for us. If ELF gets sold, it'll likely be for a decent premium. And speculators will drive shares higher as more offers come in.

Analysts are buzzing over potential takeover scenarios and assigning buyout targets as high as $25 per share. e.l.f. Beauty is still a “buy” for anywhere under $15. Its takeover target is $25.

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