Okay, so e.l.f. Beauty (NYSE: ELF) had a rough day. A 29% plunge in the stock price after a mixed quarterly report? That's… noticeable. The knee-jerk reaction is always to scream "buying opportunity," but let’s dissect the numbers before we jump in.
Revenue up 14% year-over-year to $343.9 million in Q2 fiscal 2026 sounds decent enough. Adjusted EPS beating expectations at $0.68 is a plus. But the market clearly fixated on the outlook, and for good reason. The company's guidance suggests a significant earnings slowdown which is not good for any company.
The Tariff Tightrope and Rhode's Reality
The real gut punch comes from the details. Gross margin contracted by 1.5 percentage points, blamed on tariffs. And the adjusted EPS is projected to drop 17% in fiscal 2026. Seventeen percent! That's not a blip; that's a trend.
e.l.f. is still projecting revenue growth of 19% (at the midpoint) for fiscal 2026, which sounds impressive, until you realize about $200 million of that is coming from Rhode, their recent acquisition. Strip that out, and you're looking at organic revenue growth of only 3% to 4%. Three to four percent organic growth in a sector that’s supposedly booming? That’s a red flag waving furiously.
The acquisition cost was substantial (reported at $2.1 billion). Was Rhode worth it? That's the million-dollar question. Or, more accurately, the two-billion-dollar question.
And this is the part of the report that I find genuinely puzzling. Why acquire a company that masks underlying organic weakness? Are they buying growth, or desperately trying to appear to be growing?
I’ve looked at hundreds of these filings, and this particular scenario is unusual. Companies typically highlight organic growth, not bury it under acquisition figures. The justification is often "synergies" or "market expansion." But in this case, it feels more like… camouflage.
Premium Price, Discount Growth?
Now, let’s talk valuation. Even after the crash, the stock trades at nearly 30 times adjusted earnings guidance. Thirty times earnings for a company with 3-4% organic growth and declining earnings? That's a hefty premium. The market, it seems, was pricing in continued high growth, and the new guidance shattered that illusion.
It can be tempting to view Thursday's decline as a buying opportunity, but the stock still looks pricey. Shares trade for nearly 30 times adjusted earnings guidance, a premium that may not be deserved, given the sluggish organic revenue growth and declining earnings. It may be wise to wait for an even lower price to jump in.
The question is whether this is a temporary setback or a fundamental shift in e.l.f.'s growth trajectory. Tariffs are a factor, yes, but are they the only factor? Or are there deeper issues at play: increased competition, changing consumer preferences, or simply a slowdown in the overall beauty market?
The sentiment online is mixed. A quick scan of investor forums shows a lot of "buy the dip!" enthusiasm, but also a growing undercurrent of concern. The ratio of positive to negative comments has shifted from roughly 3:1 a week ago to almost 1:1 today. That’s a quantifiable shift in sentiment, and it’s not a good sign.
