Among makeup and skin care stocks, e.l.f. stands out with a rise after a plunge
High-end makeup is still glowing, but it’s the low-cost producer e.l.f. Beauty (NYSE: ELF) that is shining on Wall Street amid uncertainty over tariffs affecting the industry.
Shares in the leading affordable “dupe” producer – one that copies expensive makeup at lower prices – have risen to $139.96, up 16.2% in the last month, near its 52-week high of $140.63 in December. Meanwhile, shares of Estee Lauder (NYSE: EL) gained 1.4% this month and the stock of retailer ULTA Beauty (NASDAQ: ULTA) has risen 1.2%.
e.l.f. stock (green) from 1 month, compared with EL(Light Blue), ULTA (pink) and the S&P500 (purple). Chart: Yahoo Finance
“The sentiment is good going into the back half” of the year, said Susan Anderson, managing director of Canaccord Genuity LLC, an investment bank focusing on growth companies, referring to e.l.f..
e.l.f. Beauty shares have endured quite a rollercoaster. Shares of the company, which sells in places like Target, plunged 60.32% after “liberation day” in April, when President Trump announced tariffs for countries all over the world, especially China, on which e.l.f. depends on 75% of its manufacturing. It began slowly bouncing back in May, narrowing its year-to-date loss to 11.62% in June, driven in part by the announcement that it was acquiring Hailey Bieber’s skin care company, Rhode. The company has also recently revealed an international expansion plan and a partnership to become the official back-of-shirt sponsor of the Tottenham Hotspur Women’s soccer team. By Friday, shares had risen 11.48%, a sign that investors’ confidence is also growing.
Another challenge the company recently had to overcome was a backlash on social media after its new campaign launched on August 11th, featuring comedian Matt Rife. Customers pointed to a joke Rife made in his 2023 Netflix special, mocking a waitress with a black eye. The company’s customer base, primarily Gen Z, voiced its anger on social media and called for a boycott.
Some retail investors followed the repercussions closely. Abed Jarad, from Germany, has held e.l.f. shares since 2023. He said he has closely followed the backlash, worried about how it would affect his investments.
“I saw a lot of controversy, especially in the comments, that made me worry a bit,” he said. “But I think it’s short-lived, or they forget about this stuff very fast.”
The company has won fans for its use of social media.
“What they’ve done well with social media is, they’ve connected with their customers,” said Adam Sweet, a senior portfolio manager at the wealth management firm Jacobson & Schmitt Advisors. “That allows them to innovate faster, so they get feedback from the people that use their products.”
But the downside of social media, he said, is that “sales could decline faster as that bad news spreads.” But so far, they’ve been quite successful with engaging with their customers, mainly on that innovation side.”
Other beauty companies also struggled during the first half of the year. At Estee Lauder (NYSE:EL), a high-end makeup and skin care developer, investors were cautious as new management took the reins in January. But optimism grew in May after stronger results.
“I think the new management has demonstrated that they have a plan to turn around the business,” said Dan Su, an equity analyst at Morningstar who tracks Estee Lauder. “That’s really hitting at the key concerns that the investment community has had about this company.”
The retailer ULTA Beauty has also struggled in the stock market, in part because of low sales, but sentiment shifted with management changes, stronger results that beat expectations and the announcement of international expansion starting with the company’s first store in Mexico. Although ULTA is not a direct competitor to e.l.f., they remain highly dependent on each other, as ULTA sells e.l.f. products in its stores.
For now, sales are growing robustly. In the first quarter, e.l.f. doubled sales to $354 million through all its retail partners.
But even with a strong demand, the “dupe” producer, based in Oakland, Calif., faces pressure from tariffs. To mitigate the impact, it raised prices on all its products by $1 last month. The average price of e.l.f. product is now $6.50.
“They’re a company that takes pride in the low prices that they have and the good value that they have,” said Sweet. “If e.l.f. doesn’t raise prices, then profitability can go down fairly severely.”
From 2022 to 2024, e.l.f. made huge jumps in sales growth, sometimes 20% or as much as 80%. But Anderson said that level of growth was no longer sustainable, as the company’s products are now found “pretty much at all distribution points” in the U.S., and growth is now more likely to depend on consumers’ buying more products.
“Really going forward, what’s going to drive the growth is some continued market share gains,” she said. “But also new products and innovation.”