Why e.l.f. Beauty Stock Made a Big Comeback Today

Shares of cosmetics company e.l.f. Beauty (NYSE: ELF) made a big comeback on Thursday after the company released financial results for its fiscal second quarter of 2024. Going into the report, shares had lost more than 50% of their value compared to their highs in 2024. But today, e.l.f. Beauty stock was up 16% as of 2 p.m. ET.

Marketing investments pay off with strong growth

In Q2, which ended Sept. 30, e.l.f. Beauty grew net sales by 40% to $301 million, which surpassed expectations. It apparently surpassed internal expectations as well considering that management updated its full-year guidance for the second time this year. Previously it was looking for full-year net sales just shy of $1.3 billion but now it believes sales will be slightly above $1.3 billion.

The bottom line for e.l.f. Beauty was a different story. The company had Q2 net income of $19 million, which isn't bad. But it was down 43% from the prior-year period. Management had a notable increase in marketing spend, among other things, which lowered profits.

Investors shrugged off e.l.f. Beauty's lower net profitability for a couple of reasons. First, the marketing spend apparently paid off because the company took additional market share in the cosmetics space. Second, its gross margin improved slightly, which is a good sign when thinking about the big picture with this business.

Management will look for ways to keep taking market share

There are still a lot of long-term growth opportunities that e.l.f. Beauty's management should focus on. The company does have a $500 million buyback plan in place but it didn't use any of it during the quarter -- it simply exhausted the $17 million that was left on the old plan. That's one thing to watch when it comes to shareholder returns with this high-growth cosmetics player.

But for now, it seems e.l.f. Beauty will focus on gaining more market share in its existing markets as well as branching out into new markets internationally, which could be more consequential for shareholders from here.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends e.l.f. Beauty. The Motley Fool has a disclosure policy.