Investing.com – Morgan Stanley Upgrade ELF Beauty Company (NYSE:) to “overweight” on an attractive valuation after the stock halved from 2024 highs. The brokerage believes the pullback represents a buying opportunity, given the company’s long-term growth potential and improving trends in US scanner data.
ELF continues to gain US market share, even in a sluggish beauty category. Strong international expansion and growth in the Naturium business are additional drivers. Morgan Stanley (NYSE:) also expects easier year-over-year comparisons and a potential rise in near-term revenue and EBITDA.
The stock is trading at 30 times next-12-month earnings, which is below its five-year average of 40 times, which the company views as a breakout given the company’s strong growth outlook.
“The valuation is now compelling in our minds with the stock down nearly 50% from its higher and easier comparables now looming, in contrast to the more difficult comparables ELF has been facing in the past few quarters,” the analyst added.
The brokerage noted the risks of Chinese tariffs given that 70% of the cost of goods sold is Chinese-sourced to the US, adding, “But we believe it has been mitigated by President-elect Trump’s recent 10% hold.”
The 10% tariff was manageable and would only require approximately 2.5% of US pricing to compensate even before the ELF used other factors, MS said, adding that the ELF had the potential to eventually price in tariffs through successful historical price increases in 2019/2022 with low elasticity of demand due to its strength. Low price point.
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