Looks Can Be Deceiving When It Comes To e.l.f. Beauty Stock

ELF is up over 50% in the past 12 months

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e.l.f. Beauty, Inc. (NYSE:ELF) is an American cosmetics brand. Major distribution partners include Ulta Beauty Inc (NASDAQ:ULTA), CVS Health Corp (NYSE:CVS), Target Corporation (NYSE:TGT), Walmart Inc (NYSE:WMT), and more. So its safe to say that as the cosmetics and retail industry goes, so does ELF. 

The company will report earnings on Wednesday, August 4 after the close.  e.l.f. Beauty has outperformed earnings expectations on three of its last four earnings reports released. However, only one of those post-earnings reactions was to the positive--a meager 0.8% gain in February. 

ELF is up 51% in the last 12 months, but has shed 9.5% in the last three. The good news is the pullback has run out of steam at the stock's 200-day moving average. A short squeeze could help the shares return to their April 23 five-year highs of $31.29. Short interest accounts for 5% of the stock's total available float, and at its average pace of trading, it would take bearish bettors a full trading week to buy back their bets.

ELF Stock Chart

From a fundamental perspective, e.l.f. Beauty’s stock has significantly outpaced the company’s growth. The company currently trades at a massive price-earnings ratio of 222.5, and ELF has a very high forward price-earning ratio of 40.32. In addition, revenues are only up by 18% since fiscal 2017, making it difficult to justify the current stock valuation. ELF remains a high-risk play given the company’s inconsistency on the bottom-line. ELF's net income is currently down by 65% since fiscal 2020 and has decreased by more than 80% since fiscal 2018. At best, e.l.f. Beauty stock has potential as a long-term recovery play with a three to five year outlook.

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