Is e.l.f. Stock Too Cheap to Ignore?

Macroeconomic concerns like tariffs and inflation haven't made much of a dent in high-flying artificial intelligence (AI) stocks, but they are affecting other excellent businesses that rely on consumer demand and global markets. Consider e.l.f. Beauty (NYSE: ELF), for instance.

The cosmetics and skincare company has become one of the largest and most popular companies in its industry, but it's been struggling with profitability and decelerating growth over the past two years. It's highly exposed to U.S. tariffs, and the stock has also been slammed by the Iran war since refined oils and chemicals are used in its products and packaging.

It makes sense that the market has concerns about e.l.f. in the current environment. But is it shortsighted? And is the stock oversold?

Image source: Getty Images.

Fun, eco-friendly, mass-market cosmetics

E.l.f. has taken over the makeup scene from legacy giants and become the top name in mass-market cosmetics across many categories. It originated with the $1 product but has since raised its prices as inflation soars. It's still often the cheapest option for many of its products, some of which have become viral sensations and sell out fast. The company's average product selling price is $7.50, vs. $9.50 for other mass-market brands and $30 for prestige brands.

It has jumped ahead of some of the competition by appealing to its younger target clientele and positioning itself as eco-focused and value-driven. It has a robust social media presence that's fundamental to its business model and finds its target customers where they already are.

In the 2026 fiscal third quarter (ended Dec. 31), revenue increased 38% year over year. Gross margin fell 0.3 percentage points to 70%, and net income per share increased from $0.30 to $0.65. It gained 8% market share in color cosmetics consumption in the quarter, outpacing 4% industry growth, and 16% in skincare, outpacing 7% industry growth.

It recently acquired Hailey Bieber's Rhode brand, which has become the top-selling brand in Sephora's U.S. stores. It also recently became the largest launch ever at Sephora U.K. This is the company's first foray into acquisitions, and it could unlock future growth opportunities.

Is e.l.f. stock oversold?

Given the challenging macro environment, several analysts have downgraded e.l.f. stock or lowered their target prices.

The good news is that every covering analyst sees the stock increasing over the next 12 to 18 months, with an average consensus target 58% higher than today and a high target price that implies a 144% gain.

At the current price, e.l.f. stock trades at 31 times trailing-12-month earnings. Objectively, that's not super cheap, but it's well below the five-year average of 75. If you can withstand short-term volatility, e.l.f. could be an excellent long-term pick.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends e.l.f. Beauty. The Motley Fool has a disclosure policy.