elf Beauty Inc (NYSE: ELF) rallied as much as 30% this morning after announcing a $1 billion deal with Hailey Bieber.
elf is buying the influencer’s skincare and cosmetics brand, Rhode, in what is being touted as one of the biggest celebrity beauty transactions to date.
While the acquisition may strengthen elf’s position in the premium beauty segment and expand its reach among younger consumers, analysts caution that the market may have already priced in the upside.
Piper Sandler view suggests elf Beauty stock is out of room to run
Piper Sandler analyst Korinne Wolfmeyer raised her price target on elf Beauty shares following news that it’s buying Bieber’s skincare and cosmetics brand.
Wolfmeyer increased the EV/EBITDA multiple on ELF from 16x to 21x to assign a fair value of $109 on the beauty stock.
However, her upwardly revised price objective on the NYSE-listed firm still represents a potential downside of more than 5% from current levels, indicating the rally this morning may have gone a bit too far.
Additionally, elf Beauty stock does not currently pay a dividend to incentivize owning it at current levels either.
elf Beauty management did not offer future guidance
Despite the billion-dollar acquisition of fast-growing Rhode, elf Beauty refrained from offering financial guidance for the future on Thursday.
This has left investors relying on external analysis only rather than company projections, which may also indicate that the Hailey Bieber transaction is already priced into elf Beauty shares.
Investors should also note that other Wall Street firms agree with Piper Sandler’s view on ELF as well.
In fact, the latter is among the more bullish names on the cosmetics company.
While the consensus rating on elf Beauty remains a “buy”, the mean target of nearly $97 indicates potential downside of roughly 20% from here.
Together, the aforementioned data warrants caution in buying elf shares following the Bieber-driven rally on Thursday.
elf Beauty shares are not inexpensive to own at current levels
elf Beauty stock is not particularly exciting to own at current levels, also because its EV/EBITDA multiple on a forward basis sits at a little over 29 following today’s rally.
In comparison, the company based out of Oakland, California, has traded at less than 25 times over the past five years, which suggests ELF is not really an inexpensive stock to own at the time of writing.
In related news, elf Beauty reported an impressive fourth-quarter that topped estimates on both the top as well as bottom line this week.
The company earned 78 cents a share in fiscal Q4 on a 3.6% year-on-year increase in its net sales.
elf Beauty gained “190 basis points of market share in the US and continued the international expansion strategy,” in the fourth quarter, as per its chief executive, Tarang Amin.
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