Is e.l.f. Beauty Stock a Buy as Rhode Drives Growth?

E.l.f. Beauty (NYSE: ELF) closed out its fiscal year delivering solid fourth-quarter revenue growth, led by its Rhode acquisition. However, even after seeing a small lift in its share price following the report, the stock is still down about 35% on the year.

Let's take a closer look at the cosmetic company's results and prospects to see if this is a good time to buy the stock.

Image source: The Motley Fool.

Rhode leads the way

For its fiscal Q4 (ended March. 31), e.l.f. Beauty sales climbed 35% year over year to $449.3 million, easily besting the analyst consensus of $423 million, as compiled by LSEG.

Adjusted earnings per share (EPS), meanwhile, plunged 59% from $0.78 to $0.32, but topped the $0.29 analyst consensus. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) sank 28% to $58.8 million. The drop in profitability was largely due to investments in marketing, as its gross margin rose 140% basis points to 73%.

Organic growth, excluding its acquisition of Rhode, edged up 1%. The company saw unit volume decline for its namesake brand after an August price increase, and global consumption for the brand dropped to the low single digits in the quarter. After seeing a nearly 40% unit increase in sales of Halo Glow Skin Tint after lowering the price from $18 to $14, the company is considering testing other price adjustments.

Rhode contributed $113 million in revenue in the quarter, and the brand grew its sales by 80% during the fiscal year to $390 million. The company said the brand is in only 20% of LVMH's Sephora stores globally, so it still has a big expansion opportunity ahead in just this one retail outlet. Meanwhile, it said its Naturium brand was also performing well, being the fastest-growing top-50 skincare brand.

Looking ahead, e.l.f. guided for full-year fiscal 2027 revenue of between $1.835 billion and $1.865 billion, representing growth of 14% to 17%. It is projecting adjusted EPS to rise from $3.13 to between $3.27 and $3.32. It expects organic sales to be down in the high single digits in Q1, but to rebound to mid-teen growth in Q2 due to lapping the Rhode acquisition and its decision to stop shipments last year in Q2 ahead of its price increase.

Is the stock a buy?

While e.l.f. is facing some headwinds with its namesake brand, the company's growth story with Rhode remains unmistakable. The brand has been outperforming, and e.l.f. still has a long runway for growth from expanding its product assortment and growing its distribution. This year, Rhode will begin expanding to 19 European Union countries through Sephora.

At the same time, the company is expecting a much lower tariff rate going forward, anticipating it dropping from 55% to 35%. That should give it some room to lower prices on its namesake brand while maintaining margins, to help revitalize growth.

Trading at a forward price-to-earnings ratio (P/E) of 15.5 based on this fiscal year's earnings estimates, e.l.f. is cheap for a growth stock. Given the long runway the company has with Rhode, I'd be a buyer at current levels.

Geoffrey Seiler has positions in LVMH Moët Hennessy-Louis Vuitton and e.l.f. Beauty. The Motley Fool has positions in and recommends e.l.f. Beauty. The Motley Fool recommends London Stock Exchange Group Plc and Lvmh Moët Hennessy-Louis Vuitton, Société Européenne. The Motley Fool has a disclosure policy.