Should you buy elf Beauty shares before November 6th?

Retail trade of cosmetics elf beauty (ELF -0.29%) has become one of the fastest growing consumer brands in recent years. The stock has tripled over the past three years thanks to the company’s rapid expansion in the growing cosmetics market. But 2024 has proven challenging for many retailers as persistently high inflation and other macroeconomic headwinds have weighed on consumer spending.

Investors were caught off guard after elf’s quarterly revenue growth slowed sharply over the past two quarters. Management expects full-year sales growth to be between 25% and 27%, which is well behind the 50% year-over-year increase reported last quarter. The stock is currently down 25% year to date.

With someone else income statement On November 6, the company could again disappoint investors with its guidance, which could cause the share price to fall to new lows. On the other hand, a lower stock valuation could lead to a post-earnings rebound if the company performs better than expected.

Let’s look at the pros and cons of buying a stock ahead of a report, starting with reasons why investors should wait.

It might get worse before it gets better.

Some analysts are concerned about weakening demand heading into the fall. For example, company analysts Bank of America And Piper Sandler noted weak back-to-school shopping trends in addition to a weak retail spending environment, which could make it difficult for the company to meet investor growth expectations.

Another issue is marginal productivity. The company reported slightly higher gross profit last quarter, reflecting favorable currency exchange rates, lower transportation costs, cost savings and higher prices in international markets. However, management plans to maintain high marketing expenses in the near future, which could impact profitability and earnings growth.

For the full year, elf’s earnings were up just 10% year-over-year, according to analyst consensus estimates. In addition to slowing revenue growth, low double-digit earnings growth could weigh on the stock’s performance next year.

Why stocks are worth buying for the long term

Despite the near-term headwinds, it’s difficult to sell elf Beauty shares at such a low price due to attractive long-term growth prospects.

Leading cosmetic brands generate repeat sales from customers and the market offers solid growth prospects. Statista predicts the beauty and personal care market will grow 3% annually to reach $756 billion by 2029. Once Wall Street sees the first signs of a recovery in the cosmetics market, elf Beauty shares could soar.

Over the past few years, elf’s market share has doubled, making it the No. 2 mass brand in dollar terms. The company is just beginning its international expansion, where IInternational sales rose 91% year-over-year last quarter.

Shares trade at price forward price/earnings ratio 30 on earnings estimates this year, which seems fair for a business with double-digit growth prospects over the long term. The brand’s appeal is centered on selling quality products at affordable prices, which clearly resonates with consumers in many regions.

It’s possible that the stock will hit new lows before moving higher, but patient investors could make excellent returns over the next five years from these stock prices.