e.l.f. Beauty

At face value, e.l.f. Beauty Inc looks inexpensive, following a substantial price decline over the past year. To account for the risk of a possible value trap, we have capped its rating at 3 stars. The stock currently trades at a 20% discount to our quantitative fair value estimate of $129.77 per share; however, caution is warranted due to this estimate's high uncertainty rating.

The company's solid growth bolsters our estimated fair value. Consistent revenue and earnings growth indicates a company's potential for increased market share and profitability. For example, the firm's revenue 3-year growth of 30.4% sits in the top 10% compared with peers globally. Robust trailing three-year revenue growth portends a favorable future trajectory, which contributes to our view that shares are undervalued.

Alternatively, the company's valuation metrics are potentially concerning. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. The firm's book value yield of 18.9%, for example, falls in the bottom 20% compared with peers globally. The market value of this company's shares looks expensive relative to the book (accounting) value of equity, which, despite our favorable price/fair value ratio, is a negative attribute.

With its quantitative economic moat rating of none, we do not expect this company to materially outearn its cost of capital in the long run. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.