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Beauty Stock Gets Crushed—Worth Catching the Knife?

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e.l.f. Beauty (ELF) just got absolutely wrecked after management lowered profit guidance, with shares down 40% YTD. The pullback came despite solid top-line growth—Q2 sales hit $343.9M, up 14% YoY with 27 consecutive quarters of expansion. They even scored a “record-breaking” Rhode (Hailey Bieber’s brand) launch at Sephora.

But here’s the problem: EPS fell to $0.68 from $0.77 in the prior year, and FY2026 guidance is brutal—only $2.80-$2.85 vs. last year’s $3.39. Gross margin contracted 165 basis points to 69% due to tariff headwinds and aggressive marketing spend.

The real issue? About 75% of production is sourced in China. That supply chain advantage that made e.l.f. the low-cost leader is now a liability in a tariff environment.

The verdict: Stock still trades at ~40x P/E despite slowing profitability. Unless they diversify production (costly) or tariffs get repealed (risky to bet on), the thesis looks shaky. Growth story is real, but valuation premium no longer justified. For now—better opportunities elsewhere.

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