e.l.f. Beauty: Riding the Surge with Strategic Acquisitions and Value Catalysts

The stock of e.l.f. Beauty (ELF) has surged by over 105% in recent quarters, driven by a mix of strategic acquisitions, operational efficiency, and a repositioning in equity indices that signals undervaluation. Analysts now see the stock trading at a 16.7% discount to its $81.28 consensus price target, while the company's bold moves—such as acquiring Hailey Bieber's beauty brand rhode—highlight its ambition to dominate niche markets and expand globally. Let's dissect the catalysts behind this momentum and assess whether the stock remains a compelling investment.

Strategic Moves: From rhode to International Expansion

The acquisition of rhode in May 2025 stands out as a transformative move. e.l.f. agreed to pay up to $1 billion for the brand—$600 million in cash, $200 million in stock, and a $200 million earnout tied to performance—marking its largest deal to date. rhode's cult following and alignment with Gen Z and millennial preferences for inclusive, high-performance products positions e.l.f. to tap into a growing market. The deal also diversifies its portfolio, reducing reliance on its core e.l.f. Cosmetics brand and bolstering its presence in luxury-adjacent segments.

Beyond acquisitions, e.l.f. is doubling down on geographic expansion. In early 2025, it entered Belgium and the Netherlands via partnerships with retailers like KRUIDVAT and TREKPLEISTER, targeting untapped markets in Europe. This follows strong international sales growth of 91% in fiscal 2025, fueled by partnerships in Mexico (e.g., Sephora) and robust e-commerce traction.

Valuation Drivers: Earnings Power and Index Shifts

The stock's valuation case is bolstered by operational strength. In Q2 2025, net sales jumped 40% to $301.1 million, with gross margins improving to 71% due to cost discipline and price hikes in international markets. Adjusted EBITDA rose to $69.3 million (23% of sales), while the company raised its full-year outlook to 28–30% net sales growth. These metrics, alongside a $500 million share repurchase program, signal confidence in its ability to scale profitably.

Crucially, e.l.f.'s recent inclusion in value-oriented indices—such as the Russell 2000 Value Index—while being excluded from growth-focused benchmarks like the Russell 2000 Growth Index, reflects a shift in investor perception. This reclassification often attracts passive funds tracking value indices, providing a tailwind for share prices.

Risks and Considerations

The rhode acquisition carries risks, including integration challenges and dilution from the stock component of the deal. Additionally, e.l.f.'s debt load has risen to $156.6 million, up from $57.7 million a year earlier, which could strain liquidity if growth falters.

On the macro front, consumer spending trends and foreign currency fluctuations remain wildcards. A slowdown in discretionary spending or weaker international demand could pressure margins, especially in emerging markets.

Investment Thesis: Value Play with Upside, but Mind the Risks

At current prices, ELF trades at a 16.7% discount to its consensus price target of $81.28, offering a margin of safety. Analysts at BofA and Baird recently raised their price targets to $95 and $100, citing the rhode deal's growth potential and e.l.f.'s ability to scale margins through operational efficiency.

For investors, the stock's 285% five-year total return—far outpacing broader markets—suggests management's execution is on point. However, the recent rally has pushed valuations closer to fair value, making timing critical.

Final Take

e.l.f. Beauty's blend of strategic acquisitions, geographic expansion, and margin improvements positions it as a high-potential value stock. While risks like debt and macro uncertainty linger, the company's track record of delivering on growth targets and its undervalued status relative to consensus estimates make it worth considering for investors with a 1–3 year horizon.

Recommendation: Hold for now, but keep an eye on rhode's integration results and Q4 2025 earnings. A dip below $100 could present a better entry point, while a sustained breach of $120 would signal a shift to Buy.

Data as of July 2025. Past performance does not guarantee future results. Always conduct your own research or consult a financial advisor before making investment decisions.