e.l.f. Beauty's stock took a hard hit shortly after we published our initial recommendation, but the company has flipped the bearish narrative on the business.

Shares are down 17% to $107 since our recommendation almost exactly one year ago. The main pressure point: management's 2026 sales growth guidance, issued in November of 2025, called for low single digit year over year organic sales growth, which excludes the effect of acquisitions.

The company had essentially over-shipped to key retailers, Dollar General and Target, which had already loaded its shelves with e.l.f. products for some period. Analysts reduced profit estimates almost immediately. Overall growth guidance was higher, given that the acquisition of rhode, Hailey Bieber's brand, closed. But the market was disheartened with the apparent deceleration in the rest of the discount beauty products.

Then, early this year the stock took another hit with the onset of the Iran war. Rising energy prices caused concern about consumer demand, and e.l.f. is a particularly volatile stock, causing it to fall to about $50.

The stock has more than doubled since that bottom. It's highly plausible that it's still worth more than it's currently trading for. That's because of its brighter growth outlook.

In August, management raised 2027 fiscal year sales growth guidance to a touch over 19%, at the midpoint of the range, implying total revenue of about $1.95 billion. Chief Financial Officer Mandy Fields said that would reflect about 13 percentage points of growth from rhode, leaving just 6 percentage points of organic growth. That's a vast improvement over that awful guidance last year, and fairly strong given that beauty is a mature global industry.

Expect slightly slower growth in fiscal 2028, when the initial impact of rhode goes away. But that's not a problem. The most recent guidance implies the business is still doing what it's supposed to do: take market share in a slow-growing and mature industry worth hundreds of billions of dollars annually, according to McKinsey.

Analysts expect a more normalized 8% sales growth in 2028. This type of growth can continue for a long time, given the "white space" opportunity the company re-emphasized on the August earnings call-business jargon for beauty spending that e.l.f can capture.

That can turn into sustained earnings growth. Yes, the company has always focused heavily on marketing spend, especially on social media sites such as TikTok. But management's guidance for $404 million in fiscal 2027 earnings before interest, taxes, depreciation, and amortization (Ebitda), still implies a 20 basis point year over year increase in the Ebitda margin.

If management can leverage its investments and expand margins in the long term, it can generate sustained earnings growth. If it does, earnings per share would grow faster than sales, and the growth could reach well into the double digits annually.

Deutsche Bank analyst Steve Powers lifted his price target on the stock, "driven by higher outer-year margin assumptions as rhode scales, international mix expands, and recent marketing and infrastructure investments begin to leverage."

This scenario makes the stock look attractive. It trades at about 29 times next 12 months earnings, and while that might sound lofty versus any major U.S. stock index trading no higher than the 20s, it traded as sustained as 37 times in the past year.

Don't give up on this name. It has a beautiful future.

Join us for the next live Q&A: Hear from our stock pickers and technical analyst as we discuss the latest market developments-and take your questions. Register here

Share your questions and thoughts in the "Conversation" section below to engage directly with the author and our community

Receive alerts about more content from this author by clicking "Follow" next to the author byline at top