Previously, we published an article about e.l.f Beauty (NYSE: ELF), a fast-growing beauty stock. Since then, there have been several developments that are worth noting.

To learn more, you can click this link to review our previous article: "e.l.f. Beauty: A Different Beauty Company"

According to data from TipRanks, on August 2nd, shares of e.l.f. Beauty jumped 14% after the company raised its full-year guidance on surging sales.

This marks the third time in a row that the company's earnings have led to a stock price surge of over 14% this year.

So far this year (as of August 18th, 2023), the company's stock has already gone up 113%.

You may wonder if the trend will continue. In this article, we will explore the following questions:

1. Why did the stock go up so much?

2. How does the company attract new customers?

3. Where might e.l.f Beauty find its future growth drivers?

To answer these questions, we will use the latest financial reports from e.l.f Beauty and information from past conference calls.

Why did ELF go up so much?

One major reason for the surge is likely due to the company's impressive growth rate.

In 2022, e.l.f Beauty's revenue grew by 23%. But in 2023, that growth surged to a remarkable 47.6%.

In the Q4 FY2023 call, the company projected a slowdown in revenue growth for FY2024, expecting it to be around 22%-24%.

However, the latest earnings report showed a 76% rise in Q1 FY2024 revenue, surpassing expectations and causing a stir in the market. As a result, the company lifted its FY2024 full-year revenue guidance to 37%-39%.

This ongoing growth has been instrumental in pushing up the company's stock price. The future performance of e.l.f Beauty's stock likely lies in the company's ability to sustain this fast-paced growth in business.

How does the company attract new customers?

In the previous article, we discussed how e.l.f Beauty's affordable makeup and skincare products have resonated with young people on social media, particularly Generation Z.

However, investors are now questioning whether this social media strategy will continue to be effective as the company seeks to become a beauty giant like Estée Lauder (NYSE: EL). To achieve this goal, e.l.f Beauty may need to expand its customer base and offer more expensive cosmetic products.

Based on e.l.f Beauty's financial reports and conference calls, here's how the company is attracting new customers:

1. Firstly, they use social media ads to draw in cost-conscious buyers. Its management stated in the Q2 FY2023 call that customers who start with affordable products tend to buy higher-end items later thanks to e.l.f's high quality.

2. Additionally, the company captures new users by innovating new products. For example, its management stated in the Q3 FY2023 call that its "Poreless Putty Primer" costs just $8 but delivers results comparable to higher-end brands costing $52. This product has been dubbed a 'Holy Grail' item and has attracted different age groups, including Gen Z, Millennials, and Gen X.

3. By expanding 'Holy Grail' to different product categories, the company has the potential to attract a broader range of age groups."

In summary, e.l.f Beauty's current approach involves offering affordable options for the younger crowd while introducing 'Holy Grail' products to attract a wider age range to grow and maintain its customer base.

Where might e.l.f Beauty find its future growth drivers?

Based on e.l.f Beauty's financial reports and conference calls, e.l.f Beauty's future growth prospects might rely on three key drivers: expanding shelf space, boosting online sales, and global expansion.

• More shelf space: e.l.f products are currently available in major retail chains such as Target, Ulta, CVS, and Walgreens. According to ELF's Q1 FY2024 Earnings Call, in Target they currently have a leading brand market share of nearly 18%. The company plans to increase its shelf space in stores like Ulta, CVS, and Walgreens in the coming months, presenting an opportunity for further growth.

• Online Boost: According to ELF's Q1 FY2024 Earnings Call, the company is experiencing a surge in digital sales, with over 100% growth in the first quarter of FY2024. The growth is fueled by social media ads and the 'Beauty Squad Loyalty Program,' which boasts a membership of 3.9 million (growing at 25% annually).

• Going Global: While most of e.l.f Beauty revenue (87.5%) comes from the US market, international markets are rapidly expanding.  According to ELF's Q1 FY2024 Earnings Call, international revenue jumped by 79% in the first quarter, with the UK and Canada leading the way (10x and 3x growth, respectively). e.l.f. currently holds only a 5% market share in these overseas markets, highlighting significant untapped potential.

These strategic moves have the potential to elevate e.l.f Beauty's market standing and accelerate the company's growth.

Summary

e.l.f Beauty is a rapidly growing beauty brand. Its impressive stock performance seems to have been driven by its exceptional financial performance. However, future stock performance depends on the company's ability to sustain high levels of growth.

e.l.f Beauty's future growth prospects are driven by three factors:

• Expanding shelf space

• Boosting online sales

• Global expansion

However, note that like other fast-growing companies, e.l.f Beauty faces the risk of a high valuation.

According to The Motley Fool, the company's forward price-to-earnings ratio has soared from a bargain of 20 times expected earnings last year to a sky-high multiple of 74. This suggests that future growth may already be factored into its stock price.

Disclosures: This content is also not a research report and is not intended to serve as the basis for any investment decision. The information contained in this article does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Furthermore, there is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct.