Listed since 22 September 2016 on the NYSE at US$15.00/share, e.l.f. Beauty Inc. (NYSE:ELF) is a multi-branded beauty company that offers inclusive, accessible, clean (‘clean’ in this case implies ingredients used in the products comply with the Food and Drug Administration and European Union Cosmetic Regulation restrictions covering over 1,600 ingredients), vegan, and cruelty-free (where the company do not conduct or tolerate any tests on animals; neither do the company use any of the ingredients that are tested on animals on any of their products) cosmetics and skincare products.

Photo by Andrea Castro on Unsplash

The company’s catalogue of products are branded under the following:

(i) e.l.f. Cosmetics – Since 2004, it has an extensive range of beauty products for the eye, lip, and face (hence the name e.l.f.);

(ii) e.l.f. SKIN – its range of vegan and cruelty-free products are targeted, ingredient-focused, dermatologist-developed formulas for every eye, lip, face, and skin concern;

(iii) Well People – Since 2008, the skin care products under the brand are dermatologist-developed, super-clean, and planet minded;

(iv) Keys Soulcare – The product line was inspired by Alicia Keys’ personal skincare and self-discovery journey; products are developed by board-certified dermatologist, and are clean and cruelty-free;

(v) Naturium – Thoughtfully formulated skincare products that are cruelty-free, and dermatologist tested.

Its products are made available online, as well as across leading beauty, mass market, and specialty retailers.

Now that you have some understand of the company’s business (its easy to understand), let us now have a look at its historical financial performance and debt profile (I will be looking at the statistics recorded in the most recent 4 financial years – between FY2019/20 and FY2022/23; the company has a financial year end every 31 March) in the rest of this article. On top of that, I will also be sharing with you whether or not its current traded price is considered to be ‘cheap’ or ‘expensive’, as well as the company’s ‘fair value’ price based its 4-year average valuations.

Let’s begin:

Financial Performance

In this section, I will be looking at e.l.f. Beauty Inc.’s financial performance recorded in the past 4 financial years (i.e., between FY2019/20 and FY2022/23) – particularly, its total revenue and net profit, its gross and net profit margins, as well as its return on equity.

Total Revenue & Net Profit:

	FY 2019/20	FY 2020/21	FY 2021/22	FY 2022/23
Total Revenue (US$’mil)	$283m	$318m	$392m	$579m
Net Profit (US$’mil)	$18m	$6m	$22m	$62m

The beauty company’s total revenue saw year-on-year (y-o-y) growth in its total revenue every single year in the last 4 financial years, and recording a compound annual growth rate (CAGR) of 8.3%.

For its net profit, apart from a decline in FY2020/21 (due to an increase in selling, general, and administrative expenses, restructuring expenses, the remaining 3 years saw its net profit recording a y-o-y improvement. In terms of its CAGR growth over the last 4 years, it is at 14.7%.

Gross & Net Profit Margins:

	FY 2019/20	FY 2020/21	FY 2021/22	FY 2022/23
Gross Profit Margin (%)	64.0%	64.8%	64.3%	67.5%
Net Profit Margin (%)	6.4%	1.9%	5.6%	10.7%

Apart from a slight 0.5 percentage point (pp) dip in FY2021/22, e.l.f. Beauty Inc.’s gross profit margin have improved every single year.

For its net profit margin, apart from a decline in FY2020/21 (due to a drop in its net profit), the remaining years saw the beauty company’s net profit margin recording a y-o-y growth.

Return on Equity:

In layman terms, Return on Equity, or RoE for short, is a measurement of a company’s profits (in percentage terms) for every dollar of shareholders’ money it uses in its businesses. Personally, I would like a company’s RoE to be maintained at 15.0% and above over the years.

The following table is e.l.f. Beauty Inc.’s RoE over the last 4 financial years which I have computed:

	FY 2019/20	FY 2020/21	FY 2021/22	FY 2022/23
Return on Equity (%)	7.4%	2.2%	7.1%	15.1%

In-line with a decline in its net profit in FY2020/21, its RoE declined to a low of 2.2%. However, it recovered in the years thereafter – particularly, in the latest financial year under review (i.e., FY2022/23 ended 31 March 2023), its RoE at 15.1% was the highest in 4 years.

Debt Profile

Apart from a company’s financial performances, another area I look at whenever I study about a company is its debt profile – where my preference is towards companies that have little or no debt, as well as one that is in a net cash position.

The table below is e.l.f. Beauty Inc.’s debt profile over the last 4 financial years (i.e., between FY2019/20 and FY2022/23):

	FY 2019/20	FY 2020/21	FY 2021/22	FY 2022/23
Cash & Cash Equivalent (US$’mil)	$46m	$58m	$43m	$121m
Total Borrowings (US$’mil)	$139m	$126m	$97m	$67m
Net Cash/ Debt (US$’mil)	-$93m	-$68m	-$54m	+$54m

No doubt the beauty company is in a net debt position in 3 out of the 4 years, but it still passes my criteria for selection for 2 reasons: (i) its total borrowings is on a downward decline over the last 4 years; (ii) in-line with the decline in its total borrowings, its net debt position have improved over the years, and turning into a net cash position in the latest financial year under review (i.e., FY2022/23).

Another thing to note is that the company’s current ratio have been maintained at between 2.3 and 3.0 – implying that it will not have any difficulty in fulfilling any short-term debt obligations if need be.

Dividend Payout to Shareholders

The management of e.l.f. Beauty Inc. has not declared any dividend payout to shareholders. Hence there aren’t any dividend information to share.

Is the Current Traded Price of e.l.f. Beauty Inc. Considered ‘Cheap’ or ‘Expensive’?

At the time of writing of this post (14 December 2023), e.l.f. Beauty Inc. is trading at US$141.79.

Based on the current traded price, its current valuations compared against its 4-year average is as follows:

	Current	4-Year Average
P/S Ratio	10.5	4.3
P/B Ratio	15.2	5.6

Looking at the above, the current traded price of e.l.f. Beauty Inc. is considered to be ‘expensive’.

If I were to consider the company’s ‘fair value’ price (which is at US$42.53 based on its 4-year average valuations), its current price (of US$141.79) is trading at a 70.0% premium.

Closing Thoughts

An easy-to-understand business (it sells beauty and skin care products), a steadily improving total revenue, net profit, gross and net profit margins, as well as return on equity over the years, along with the company having minimal borrowings, with it turning into a net cash position in the latest financial year under review are reasons why the company caught my investment eye.

The only reason why the company is not in my investment portfolio is because its current price (at US$141.79) is a 70.0% premium to the ‘fair value’ price of US$42.53.

With that, I have come to the end of my review of e.l.f. Beauty Inc.’s numbers. I hope the contents above (which I’m sharing for educational purposes only) have given you a good understanding of the beauty company. They do not comprise of any buy or sell calls for the company’s shares. You should always do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of e.l.f. Beauty Inc.

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