To The Moon

$e.l.f. Beauty Inc.(ELF)$

Elf Beauty just released its earnings report after the market closed, and the stock has taken a major hit, currently down 24.5%. That means on a year-over-year basis, it’s dropped by more than 60%—a complete wipeout.

The company’s market cap is now below $5 billion, and if we’re being honest, even though the expected growth rates have been revised slightly downward, the stock is still trading at a forward P/E ratio below 20. That’s relatively low considering it's still projected to grow at a decent pace.

What’s really interesting is that before earnings were reported, the average analyst price target was 73% higher than the stock’s current price. Yes, those targets have come down in recent weeks, but keep that in mind when looking at tomorrow’s downgrades. Analysts had previously set expectations significantly higher—73.5% above the pre-earnings price.

In terms of valuation, it’s not surprising that most metrics—like forward P/E and price-to-sales—are currently below their five-year averages. The price-to-earnings growth (PEG) ratio is around 1.1, which suggests it’s far from being overvalued.

So, what exactly went wrong?

First, let’s revisit what the company said last quarter because that’s key to understanding the current situation. Previously, Elf projected fiscal year 2025 net sales growth between 28% and 30%, which was an increase from their earlier forecast of 25% to 27%. They also provided guidance for the second half of the year, expecting sales growth of 16% to 20%.

However, things took a turn. They just revised their fiscal year guidance, citing weaker-than-expected trends in January. Now, they’re forecasting a 27% to 28% year-over-year increase in net sales, down from their previous 28% to 30% estimate. While that’s still solid growth, it’s a step back from what was initially promised.

The market isn’t happy about this inconsistency. Three months ago, the company was highly optimistic and raised its guidance, but now, just one quarter later, they’re lowering expectations. This raises concerns about their ability to provide reliable forecasts.

Looking at the numbers, if their updated projections hold, full-year sales would total around $1.31 billion, meaning Q4 revenue would come in at approximately $324 million—a mere 2% year-over-year growth. That’s a stark contrast to their previous guidance of 16% to 20% growth for the second half of the year, which has now been revised down to 14% to 16%.

To be fair, the company did grow 77% in the second half of fiscal 2024, so they’re up against some tough comparisons. But what’s causing the slowdown?

Risk and Challenges

According to Elf, one major factor is TikTok. Yes, really. They believe the decline is partly due to consumers stocking up during December’s heavy promotional period and a drop in social media conversations about beauty products.

In Q3, which was a strong quarter, a significant amount of demand was pulled forward. Meanwhile, consumer attention shifted elsewhere, influenced by events such as the wildfires in Los Angeles and uncertainty surrounding the future of TikTok.

In Q4, the company faced tough comparisons, as it was lapping the global launch of its viral Glow Revamp Lip Oil—the biggest product release of the 2024 calendar year. Additionally, shipments were higher in Q4 last year because retailers stocked up in advance of the big game.

Another challenge was the slower-than-expected performance of a few new product launches for spring 2025. On top of that, social media engagement took a hit—January saw a more than 20% decline in beauty-related conversations. The company attributed this drop to two main factors: first, the wildfires in LA, which led brands to hold back on promotional efforts to avoid appearing tone-deaf, and second, the widespread uncertainty about TikTok’s future. For a while, it seemed like the only topic people were posting about was whether the platform would be shut down.

Honestly, when I read this, I can’t help but shake my head. Does it really matter? Aren’t there enough social media platforms out there? But anyway, those are the reasons given.

Guidance

As for tariffs on goods from China, the company stated that its current outlook does not factor in the recently announced 10% tariff increase. However, they clarified that these tariffs won’t impact results for the current fiscal year. They plan to address their response to these additional tariffs in their 2026 outlook, which will be shared in May. They also pointed out that they successfully navigated a similar situation in 2019 when tariffs increased to 25%, so they believe they have a solid strategy in place.

Taking a step back, it’s clear that this business has experienced rapid growth, both in the U.S. and internationally. Last quarter, international sales surged by 66%, making it another strong period. However, if Q4 revenue ends up around $324 million as projected, that would translate to just 2% year-over-year growth—quite the slowdown.

Now, looking ahead to the next 12 months, it’s clear that year-over-year comparisons will only get tougher. But ultimately, the appeal of this company lies in its long-term growth potential, particularly in the U.S. So, let’s see how things play out.

Internationally, there are still some uncertainties. I’m not sure how much longer they can use TikTok as an excuse every time sales slow down—that’s probably not going to hold up forever. However, they’re leveraging other channels too, and it looks like their Amazon sales are performing exceptionally well. Are we surprised? Not really.

At the end of the day, let’s be real—are people going to stop wearing makeup? I highly doubt it. So, this could very well be a “buy the dip” opportunity. Overall, this business is still solid. From what I’ve heard, if you’re a woman watching this, I’d love to hear your thoughts in the comments. If you have a girlfriend, daughters, or anyone in your life who uses Elf products, let me know what they think—because honestly, consumer sentiment is one of the best indicators for a company like this.

Management Unrealistic Forecast

Last quarter, management was incredibly optimistic, which is why they raised guidance. Now, of course, no one could have predicted the LA wildfires, but the outlook has shifted downward again. So, let’s see what happens in three months. Right now, we’re in a period of uncertainty—questions remain about tariffs, TikTok, and the broader economic environment.

For some, this might be a great chance to buy the dip. It’s not my kind of business, but I can understand the logic—either you wait for more clarity, or if you're already down significantly, you might decide to lower your cost basis after this massive drop. That being said, remember: just because a stock is low doesn’t mean it can’t go lower.

Looking at the stock itself previously it clear double top, followed by a sharp decline. Now, we’re back to price levels last seen in March 2023. The business has definitely grown since then, though growth rates were probably stronger back in those days.

Declining Cash Flow

Higher Investments in Growth

ELF has been expanding aggressively, both in the U.S. and internationally. Increased spending on marketing, product innovation, and retail partnerships impacts short-term cash flow.The company has been investing heavily in inventory to meet demand, which can temporarily reduce FCF.

Rising Operating Costs

Higher costs related to supply chain disruptions and inflation have weighed on profitability.Increased promotional activities (especially on TikTok and Amazon) may have pressured margins.

Trump Tariff had not factor in to today Earning, I expect ELF will have more challenges quarter ahead.

Conclusion

If the stock opens down 20% or more tomorrow, the RSI is definitely going to be oversold. At this point, it’s a falling knife—so if you want to try and catch it, go ahead, but I think we’re entering a wait-and-see period. The key questions now are: Will fiscal year 2026 guidance signal a recovery? Will social media engagement pick back up? Will growth re-accelerate?

Let me know your thoughts in the comments. It’s never fun watching a stock drop 20%+ after earnings, especially when it’s already down 40-60% from its peak. But that’s the nature of investing, and earnings season can be brutal. We’ve seen plenty of companies report strong results and still take a hit—Uber dropped after solid earnings but recovered quickly, while Amazon had a stellar quarter and still fell 5%. Sometimes, it just doesn’t seem to matter—everything gets pulled down.

With Elf, there are definitely positives, but also some real concerns to consider. That’s all for now!

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.