In 2023, the stock of E.l.f. Beauty has experienced impressive growth, and this momentum shows no signs of slowing down, according to UBS analyst Peter Grom. Grom has recently initiated coverage of e.l.f. (ticker: ELF) with a Buy rating and a $138 price target, suggesting a 26% increase from the stock’s closing price on Tuesday. The stock currently sits at $109.48, showing a slight increase of 0.2% on Wednesday. Remarkably, the stock has already surged about 100% since the beginning of the year.
Factors Driving the Positive Outlook
In a research note, Grom has outlined several reasons why he believes now is an opportune time to invest in e.l.f. Beauty. The first is e.l.f.’s attractive pricing strategy for its products. The company’s average product price is only $6, significantly lower than the $9 average in the mass beauty market and the $20 average in higher-end cosmetics.
Grom emphasizes that e.l.f.’s ability to maintain these low prices highlights its pricing power within the beauty category. This power is largely driven by e.l.f.’s focus on innovation and its strong connection with consumers.
Expanding Into Skincare and International Markets
e.l.f. Beauty’s expansion into the skincare segment is another factor contributing to its promising future. By diversifying its product offering and catering to the growing demand for skincare, the company is well-positioned to capture additional market share.
Furthermore, Grom recognizes e.l.f.’s potential for international growth as a key driver of success. With an increasing presence in global markets, e.l.f. can tap into new customer bases and expand its reach beyond domestic borders.
The Importance of Competitive Pricing
Especially in times of high inflation and the Federal Reserve’s commitment to keeping interest rates up, e.l.f.’s competitive pricing becomes even more crucial. Regardless of the economic environment, consumers continue to prioritize purchases of beauty products like lipstick and mascara. However, when faced with financial pressure, they tend to opt for more affordable options.
Overall, e.l.f. Beauty’s combination of attractive pricing, expansion into skincare, and international growth prospects make it an appealing investment opportunity. With its consistent focus on innovation and understanding of consumer preferences, e.l.f. is well-positioned to maintain its positive trajectory in the beauty market.
The Growing Popularity of e.l.f. Among Gen-Z Customers
Gen-Z customers, a demographic with less disposable income than older generations, make up a significant portion of e.l.f.’s customer base. These customers are increasingly becoming aware of the e.l.f. brand through TikTok videos, leading to a surge in the company’s popularity.
Expansion into Skincare
Chief Executive Tarang Amin highlighted e.l.f.’s successful entry into the skincare market during a call on August 1st addressing the company’s latest earnings. The e.l.f. skin line has quickly become one of the fastest-growing skincare brands. In a move to further strengthen their position in the skincare industry, e.l.f. announced on August 29th that they had acquired the skincare brand Naturium. This strategic acquisition is expected to significantly boost e.l.f.’s skincare business, accounting for approximately 18% of total sales.
International Growth Opportunities
According to analysts, e.l.f. has ample room for expansion on an international level. As many of their primary competitors already have established international operations, this represents a promising area of growth for e.l.f. Currently, the company’s focus lies on targeting Canada and the U.K., but there are plans to expand into additional countries in the future.