e.l.f. Beauty: Growing on all cylinders

e.l.f. Beauty is one of the fastest-growing brands in the beauty industry, known for offering high-quality products at affordable prices. It stands out by launching new products quickly, connecting with younger consumers on social media, and expanding its reach both in stores and online. The company has also added exciting new skincare brands like Naturium and Rhode to its portfolio. With strong momentum in the US and growing demand internationally, e.l.f. is proving that a smaller brand can take on big industry players. The question is: Should this rising beauty brand be part of your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in e.l.f. Beauty at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of e.l.f. Beauty, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

e.l.f. Beauty is an American cosmetics and skincare company founded in 2004 and publicly listed since 2016. The company has carved out a strong position in the beauty industry by offering high-quality, clean, vegan, and cruelty-free products at affordable prices. Its flagship brand, e.l.f. Cosmetics, has expanded over time to include e.l.f. SKIN, Naturium, Well People, and Keys Soulcare, giving the company a multi-brand portfolio that spans both makeup and skincare categories. These products are widely distributed through major retailers like Target, Walmart, and Ulta, as well as direct-to-consumer through its own e-commerce site. The core of e.l.f. Beauty’s competitive advantage lies in its ability to consistently deliver prestige-quality products at a significantly lower price point than competitors. With an average product price of around $6.50, compared to $9.50 for other mass brands and over $20 for prestige brands, e.l.f. makes beauty more accessible without compromising on quality. This value proposition resonates especially well with Gen Z, Millennials, and increasingly Generation Alpha. A key strength of the company is its innovation speed. On average, e.l.f. can bring a product from idea to market in just 20 weeks. This agility allows it to capitalize on beauty trends much faster than traditional brands, making it a first mover in high-demand categories. e.l.f. also differentiates itself through a digital-first and community-driven marketing strategy. Rather than relying on traditional media, the company invests heavily in social and digital platforms to engage directly with its audience. Its messaging is inclusive and appeals to a wide range of consumers, building strong emotional connections and brand loyalty. Marketing spend accounted for roughly 24 percent of net sales in fiscal 2025, reflecting the company's emphasis on digital engagement and brand building. Another part of what makes e.l.f. stand out is how well it performs in retail stores. Compared to other beauty brands, e.l.f. sells more products per inch of shelf space, which makes it more valuable to retailers. As a result, stores are more likely to give e.l.f. better shelf placement and visibility, which helps drive even more sales. This creates a positive cycle where strong performance leads to even more opportunities for growth. On the supply side, e.l.f. uses a flexible and cost-efficient setup. It works with a wide network of manufacturers and logistics partners around the world, which helps keep product quality high and costs low. This setup also makes the company more adaptable and able to handle changes or disruptions smoothly. All of these factors - pricing, innovation speed, ethical positioning, digital marketing, retail performance, and supply chain efficiency - combine to form a powerful competitive moat.

Management

Tarang Amin serves as the CEOr of e.l.f. Beauty, a role he assumed in 2014. He brings more than 25 years of experience in the consumer products industry, with a strong track record of building brands, leading innovation, and assembling high-performance teams. Prior to joining e.l.f. Beauty, he served as CEO of Schiff Nutrition, where he grew the company’s enterprise value from $190 million to $1.5 billion before its sale to Bayer. Earlier in his career, he held leadership roles at The Clorox Company and spent several years at Procter & Gamble, where he was part of the team that re-launched Pantene in the early 1990s, turning it into a $2 billion global brand. Tarang Amin holds a B.A. in International Policy and an MBA from Duke University. Throughout his career, he has emphasized a consumer-centric approach to brand building, which he continues to prioritize at e.l.f. Beauty. Under his leadership, the company has delivered exceptional growth through a combination of disruptive innovation, inclusive marketing, and a commitment to making premium-quality, clean beauty accessible at affordable prices. A strong advocate for customer engagement, Tarang Amin believes in listening closely to feedback as a way to build brand loyalty and improve product development. At e.l.f., this philosophy is embedded in the company’s culture, from responding to customer reviews to using real-time input to shape new product launches. His leadership has helped transform e.l.f. Beauty into one of the fastest-growing names in the beauty industry and a favorite among Gen Z consumers. Given his strategic vision, operational expertise, and passion for brand building, I believe Tarang Amin is the ideal person to lead e.l.f. Beauty into its next phase of growth and cultural impact.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. e.l.f. Beauty didn’t go public until September 2016, which falls within its fiscal year 2017. As a result, we don’t have data prior to that year, and the figures for fiscal 2017 only cover six months. In the early years following its IPO, e.l.f. Beauty’s ROIC remained fairly low, primarily because the company was investing heavily in brand-building, digital infrastructure, manufacturing partnerships, and product innovation. From fiscal 2017 through fiscal 2022, ROIC hovered in the single digits due to these ongoing reinvestments in growth. Over the last three fiscal years, however, ROIC has consistently exceeded 10% annually. This improvement reflects several positive shifts that made the business more efficient and profitable. As the company matured, it developed a more streamlined operating model, allowing it to run more efficiently with fewer resources. It also made better use of invested capital by focusing on high-margin products and leveraging a low-cost, flexible supply chain, which helped increase profitability without driving up costs. At the same time, e.l.f. significantly improved the effectiveness of its marketing and distribution, particularly through digital platforms and strong in-store performance at major retailers. These factors enabled the company to convert more of its revenue into actual profit, leading to stronger returns on invested capital. Given these operational improvements and e.l.f. Beauty’s continued focus on innovation and efficiency, it’s reasonable to expect the company will sustain a ROIC above 10% annually going forward.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. e.l.f. Beauty also talks about equity in its financial reports, and its steady growth over time shows the company is becoming stronger financially. Since going public, e.l.f. has grown its equity in eight out of nine years. In the beginning, profits were small because the company was focused on growing the business and investing in things like product development and marketing. But as the business became more efficient and started earning more consistent profits, those earnings helped increase the company’s overall value. At the same time, e.l.f. managed its spending carefully and limiting shareholder dilution, which helped protect existing shareholders. All of this has led to steady growth in equity, showing that the company is in good financial health and is building long-term value.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. e.l.f. has managed to deliver positive free cash flow every year since its IPO, which is impressive. The company delivered its highest-ever free cash flow in fiscal year 2025, thanks to strong performance across several areas. Sales grew significantly across both online and in-store channels, bringing in more cash from regular business operations. At the same time, the company improved its efficiency, lowering costs and optimizing its supply chain, which allowed it to keep more of its revenue as profit. However, despite hitting a record high in absolute terms, the free cash flow margin wasn’t as strong as in some earlier years. This is mainly because e.l.f. chose to increase spending on marketing and digital initiatives to support long-term growth. These investments raised costs, which meant that a smaller portion of revenue was converted into free cash flow. In addition, the timing of cash inflows and outflows, such as when customers pay or when the company pays suppliers, can vary from year to year and affect how much free cash flow remains relative to sales. The free cash flow yield is currently at its highest level since fiscal year 2020. However, at around 3%, it suggests that the shares are trading at a premium valuation. We will return to the topic of valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It’s essential to determine whether a company’s debt is manageable, and one way to assess this is by looking at how many years of earnings it would take to repay long-term debt. I generally look for a ratio below three years. In the case of e.l.f. Beauty, the debt-to-earnings ratio is 2,4 years, which falls within that range. This suggests the company’s debt is well under control. In fact, e.l.f. recently improved its financial position by updating its credit agreement to make it more flexible and favorable. Management also shared that the company has very low debt compared to its earnings and still has plenty of unused credit available if needed. This gives me confidence that debt is not a concern and wouldn’t be a reason to hesitate if I were considering an investment in e.l.f. Beauty.

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Risks

Competition is a risk for e.l.f. Beauty. The beauty industry is one of the most crowded and competitive consumer markets in the world. e.l.f. competes not only with large multinational corporations like L’Oréal, Estée Lauder, and Procter & Gamble, many of which own multiple well-known beauty brands, but also with a constant stream of smaller indie brands and influencer- or celebrity-backed startups. Many of these competitors have greater financial resources, broader global distribution, deeper retail relationships, or longer track records. This can give them an edge when it comes to advertising, innovation, or absorbing short-term price cuts. Shelf space in stores is limited, and many established players already occupy more prominent or permanent spots than e.l.f. does. For e.l.f. to grow in retail, it often requires retailers to reduce or remove other brands, something that may not always be feasible, especially when retailers have partnerships or even their own private-label lines. Additionally, some competitors may try to gain market share through aggressive discounting or promotional campaigns, which could put pressure on e.l.f. to lower prices and hurt margins. While e.l.f. has built an edge through fast innovation and a strong social media presence, especially on platforms like TikTok, this advantage may not last forever. Other brands are already copying its digital playbook and investing heavily in online engagement. As the industry catches up, e.l.f. will need to stay one step ahead in content, product launches, and community-building to maintain its momentum. Moreover, success in the beauty industry depends heavily on staying in tune with fast-changing consumer trends. A few missed trends or a slowdown in hit product launches could make it easier for competitors to take share. e.l.f. itself acknowledges the challenge of consistently delivering products that appeal to a broad and diverse customer base.

Relying on third-party suppliers is a risk for e.l.f. Beauty. The company does not manufacture its own products, instead, it relies almost entirely on third-party suppliers and manufacturers, most of whom are located in China. These relationships are based on purchase orders rather than long-term contracts, which means suppliers are not obligated to prioritize e.l.f. over other clients. If demand from other companies increases, or if suppliers face labor or material shortages, e.l.f. could struggle to get the products it needs on time or at expected costs. This setup also exposes e.l.f. to geopolitical and economic risks. Because a large share of its production is based in China, the company is vulnerable to rising labor costs, supply chain disruptions, and especially U.S.-China trade tensions. Tariffs on Chinese imports have already affected the cost of goods, and recent increases could raise costs even further. If additional tariffs are introduced or trade restrictions escalate, it could force e.l.f. to raise prices, cut margins, or rapidly shift production elsewhere, none of which are ideal outcomes. While e.l.f. is gradually diversifying its supply base outside of China, this is a complex and time-consuming process that involves working closely with existing partners to establish operations in new regions. Any delay or failure in this transition could leave the company exposed to further disruption. Additionally, relying on third parties brings quality and compliance risks. Suppliers may not always meet e.l.f.’s high standards or regulatory requirements. Quality issues, delays, or ethical concerns, such as poor labor practices or environmental violations, could damage e.l.f.’s brand reputation and result in regulatory penalties or lost sales.

Customer concentration is a risk for e.l.f. Beauty. A significant portion of the company’s revenue comes from just a few major retail partners. In fiscal year 2025, Target, Walmart, Ulta Beauty, and Amazon together accounted for over 60% of e.l.f.’s total net sales. This high level of dependence means that if any one of these retailers reduces orders, shrinks shelf space, or changes the way it promotes or prices products, it could have a noticeable impact on e.l.f.’s growth and profitability. Because e.l.f. does not have long-term purchasing contracts with these retailers, sales are made through individual orders. This gives the retailers flexibility to scale back at any time, and e.l.f. little protection if demand changes. Additionally, if any of these retailers face broader business challenges, like declining store traffic, inventory cutbacks, reputational issues, or store closures, e.l.f. could be directly affected. The company is also vulnerable to industry consolidation, where large retailers gain even more control over shelf space and terms. These partners have significant bargaining power and could pressure e.l.f. to offer lower prices or higher promotional support, which would reduce margins. Furthermore, if any retailer chooses to reduce its beauty section or prioritize its own private-label products, it could limit e.l.f.’s ability to grow in that channel. Adding to the risk is e.l.f.’s relatively small direct-to-consumer business, which only accounts for a modest share of total sales. This limits the company’s control over branding, pricing, and customer experience, factors that are mostly in the hands of its retail partners. While e.l.f. currently enjoys strong relationships with these major retailers, the company’s heavy reliance on them leaves it exposed. Any disruption or shift in retail strategy at one of these key accounts could pose a real challenge to future growth and financial stability.

Reasons to invest

Consistently gaining market share is a compelling reason to invest in e.l.f. Beauty. Few companies in the consumer space can claim the kind of consistent, long-term momentum that e.l.f. has achieved. The company has grown its market share for 25 consecutive quarters, an extremely rare feat in the highly competitive beauty industry. It's the only brand among nearly 1.000 tracked by Nielsen to have accomplished this, and one of only a handful of U.S. public consumer companies to have combined sustained top-line growth with consistent share gains over such a long period. This isn't a temporary trend, it reflects e.l.f.'s ability to repeatedly deliver products that resonate with consumers across age groups, price points, and categories. While the brand started out as a Gen Z favorite, it is now also the most purchased brand among Millennials and Gen Alpha. Its household penetration in the U.S. continues to rise, with more than one in three households now buying e.l.f. products. Unaided brand awareness has also surged over the past few years, but still trails more established names, suggesting there’s still meaningful headroom to grow. e.l.f. has translated this momentum into category leadership. It is now the number one cosmetics brand in the U.S. by unit volume and number two by dollar share, and it’s growing faster than any other top-20 brand. It has increased its share at major retail partners like Target and Walmart, and continues to expand shelf space. Importantly, there’s still plenty of runway. International expansion is gaining traction, as seen in the successful launch at Sephora Mexico and ongoing talks with Sephora for broader global presence. Domestically, e.l.f. sees opportunities to further expand shelf space at top retail accounts, particularly Walmart and Target. Newer retail partnerships, such as with Dollar General, are opening up access to underserved areas and entirely new customer segments.

Acquisitions are a compelling reason to invest in e.l.f. Beauty because the company has demonstrated a disciplined, strategic approach to building a strong portfolio of complementary, high-growth brands, each one enhancing e.l.f.’s overall business and extending its reach. e.l.f. has a high bar for acquisitions. It only acts when it sees a “win-win force multiplier”, something that can accelerate both the acquired brand and the existing business. A great example is its 2023 acquisition of Naturium, a clean, science-backed skincare brand. Since the deal, e.l.f. has helped Naturium expand into major retailers like Ulta Beauty, Shoppers Drug Mart, and Boots in the UK. In return, Naturium’s skincare expertise has boosted growth in e.l.f.’s own e.l.f. SKIN brand. Both brands had one of their strongest growth years following the acquisition, showing how the deal strengthened the business on multiple fronts. Now, e.l.f. is making an even bigger move with its acquisition of Rhode, the breakout skincare and beauty brand founded by Hailey Bieber. In just under three years, Rhode has grown rapidly, with a loyal customer base, strong digital engagement, and limited but powerful product assortment. What makes Rhode particularly exciting is its community-driven model. It has generated extraordinary customer enthusiasm, with people lining up for hours at pop-up events not just to buy products, but to be part of the brand lifestyle. Its direct-to-consumer growth, high product repeat rates, and rapid brand recognition show clear potential for long-term success. e.l.f. plans to keep Rhode’s team intact while supporting the brand with its own proven capabilities. This includes scaling Rhode’s retail presence, starting with a major launch at Sephora stores in the U.S., Canada, and the UK, and helping it grow globally. The two brands also share strengths in digital marketing and community engagement, making them highly complementary. e.l.f. will also help Rhode expand into new product categories over time, broadening its offering while preserving its brand identity.

International growth is a compelling reason to invest in e.l.f. Beauty because the company is just beginning to tap into what could become one of its largest long-term growth engines. While many global beauty companies generate the majority of their sales outside the U.S., international sales still represent only about 20% of e.l.f.’s total revenue, leaving significant room for expansion. Management has made it clear that global demand for the brand is strong, and they are actively scaling operations in high-potential markets. e.l.f. has already demonstrated it can replicate its domestic success abroad. In the UK and Canada, its two largest international markets, the brand is one of the fastest-growing among the top 10 cosmetics companies, with sizable market share gains. And this momentum is only accelerating. In fiscal 2025, international sales grew by 60%, making it the fastest-growing part of the business. The company is also executing a disciplined expansion strategy by entering new markets through trusted local retailers. Recent examples include its largest-ever international launch with Rossmann in Germany, where it gained traction quickly, and new retail partnerships in the Netherlands, Italy, and Mexico, where it has already ranked among the top three brands in select retailers. e.l.f. is now launching in over 1.200 stores with Kruidvat in the Netherlands and Belgium and entering Poland for the first time through an expanded partnership with Rossmann. One of the most encouraging aspects of international growth is its profitability. Unlike U.S. sales, international revenue is not subject to tariffs, which means higher margins. And because e.l.f.’s marketing strategy, especially on social media, translates well across borders, awareness and interest in the brand are already growing in markets where the products haven’t even launched yet. This gives the company a strong foundation to build on and suggests that demand will be waiting as it enters new countries. Looking ahead, e.l.f. plans to continue expanding internationally one market at a time, with more launches expected throughout the year.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 1,92, which is from the fiscal year 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 24,9% in the next five years, but 15% is the highest I use. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on e.l.f. Beauty's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $57,60. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy e.l.f. Beauty at a price of $28,80 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is called the Ten Cap price. The rate of return that an owner of a company (or stock) receives on the purchase price of the company is essentially its return on investment. The return should be at least 10% annually, and I calculate it as follows: The operating cash flow last year was 134, and capital expenditures were 19. I attempted to review their annual report to determine the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated for maintenance purposes. This means that we will use 13 in our calculations. The tax provision was 33. We have 56,4 outstanding shares. Hence, the calculation will be as follows: (134 – 13 + 33) / 56,4x 10 = $27,30 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With e.l.f. Beauty's Free Cash Flow Per Share at $2,04 and a growth rate of 15%. If you want to recoup your investment in 8 years, the Payback Time price is $32,20.

Conclusion

e.l.f. Beauty is an intriguing company with great management. The company has built a moat through its pricing, innovation speed, ethical positioning, digital marketing, retail performance, and supply chain efficiency. The company has historically achieved an underwhelming ROIC, but ROIC has topped 10 percent in the past three years, which is a trend that is expected to continue. The company also managed to deliver its highest free cash flow ever in fiscal year 2025, which is encouraging. Competition is a risk for e.l.f. Beauty because it operates in a highly crowded industry filled with both global giants and fast-moving indie brands that often have more resources, stronger retail ties, or aggressive pricing strategies. While e.l.f. has succeeded through innovation and digital marketing, its lead could narrow as competitors replicate its tactics and fight for limited shelf space and consumer attention. Relying on third-party suppliers is a risk for e.l.f. because it depends heavily on partners in China without long-term contracts, making it vulnerable to supply disruptions, rising costs, and geopolitical tensions. This setup also brings risks around product quality, regulatory compliance, and potential damage to the brand if suppliers fail to meet expectations. Customer concentration is a risk for e.l.f. because a large share of its revenue depends on just a few major retailers, leaving the company vulnerable if one of them reduces shelf space, cuts orders, or faces its own business challenges. Without long-term contracts and with limited direct-to-consumer sales, e.l.f. has little control over how its products are promoted or priced, which could impact growth and profitability. Consistently gaining market share is a strong reason to invest in e.l.f. because it shows the brand is winning with consumers quarter after quarter in a highly competitive industry. With growing appeal across age groups, rising household penetration, and expanding shelf space at major retailers, e.l.f. still has plenty of room to grow. Acquisitions are a key reason to invest in e.l.f. because the company takes a disciplined, strategic approach that strengthens both the acquired brand and its core business. Deals like Naturium and Rhode have expanded e.l.f.’s reach, added skincare expertise, and opened new growth opportunities in retail, product innovation, and global markets. International growth is a reason to invest in e.l.f. because the company is still early in expanding globally, yet already seeing strong demand and rapid sales growth in key markets like the UK, Canada, and Germany. With international sales growing faster than the U.S. business and offering higher margins, there is meaningful long-term upside as e.l.f. enters more countries and deepens its global presence. I believe that e.l.f. Beauty is a great company and buying shares just below the intrinsic value of the Payback Time price of $60 would be a good long-term investment.

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