Trend Investing in the ELF Beauty IPO

With much anticipation, the ELF Beauty(ELF) IPO appears to be a success. Shares were subscribed at the $14-$16 price point, which as of noon today were traded as high as $27. While this is great news for those that had the opportunity to subscribe at those levels, investors that did not have the luxury may be if there is further upside potential. Considering the estimated market capitalization is around the $250m range and 2015 annual revenue amounting to $191m, we’re looking at a price to sales ratio of roughly 1.3. Comparing this value against competitors, it would appear to be trading on the lower end of the spectrum:

ULTA Salon, Cosmetics and Fragrance (ULTA) – 15

Sally Beauty Holdings (SBH) – 4

Avon Products (AVON) – 1.79


Focusing in on the Historical P/E measure we note that ELF trades at an estimated 62.5 which is about middle of the spectrum of the sample of competitors taken:

ULTA Salon, Cosmetics and Fragrance (ULTA) – 42

Sally Beauty Holdings (SBH) – 18

Avon Products (AVON) – N/A (Has not been profitable since 2011)

The figures above may not be very comforting, however we note that the company prospects continue to improve in that brand recognition is continually on the rise and it’s strategy of fostering an internal social marketplace will only further add to the brand recognition. Not to mention the fact that as families now a days are looking to stretch their dollars further, price competitive cosmetics such as those offered by ELF should be more in favor during more volatile economic times .


Happy Trading!


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