Prediction: The e.l.f. Sell-Off Is a Golden Opportunity

After opening up with big gains following the announcement of its fiscal third-quarter results, e.l.f. Beauty (NYSE: ELF) did a complete 180 to trade decisively lower.

However, this surprising reversal after outstanding results and increased guidance looks like a golden opportunity to buy the stock.

Image source: Getty Images.

Sales jump

For its fiscal Q3, ended Dec. 31, e.l.f. Beauty sales soared 38% year over year to $489.5 million, easily topping the analyst consensus of $460 million, as compiled by LSEG.

Adjusted earnings per share (EPS), meanwhile, surged 68% from $0.74 to $1.24, besting the $0.72 analyst consensus. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 79% to $123 million.

Organic growth, excluding its acquisition of Rhode, rose 2%. However, total consumption climbed 6%, including 8% in the U.S. Meanwhile, its namesake brand took 130 basis points of share in the mass cosmetics market in the quarter. Rhode contributed $128 million in revenue in the quarter, bolstered by its launch at Sephora, which is owned by LVMH.

U.S. revenue rose by 36%, while international revenue climbed 44%. However, it said it was seeing weak consumption in the U.K., while noting it also lapped its launch into the German market through Rossmann stores.

Looking ahead, e.l.f. raised its full-year fiscal 2026 guidance, with sales now expected to increase 22% to 33%, up from a prior expectation of 18% to 20% growth. Below is its updated outlook.

Data source: e.l.f. Beauty.

The company credited its improved outlook largely to Rhode, which it now expects to contribute $260 million to $265 million in revenue, up from initial expectations of $200 million.

E.l.f. is currently looking to launch Rhode in both Australia and New Zealand. It will also introduce its Naturium brand into Walmart in the U.S. this spring. Its namesake e.l.f. brand is also set to get more shelf space at Ulta Beauty this spring and launch at DM in Germany. Meanwhile, the company said that if tariffs remain where they are at 45%, it could be a tailwind in fiscal 2027.

Time to buy the dip

The intraday reversal in e.l.f. is a head-scratcher, as the company turned in excellent results that blew past estimates. Meanwhile, the company's Rhode opportunity is still in the early innings of playing out, as it has a clear runway to expand Rhode's product assortment and increase its distribution to drive growth.

With e.l.f. trading at a forward price-to-earnings ratio (P/E) of 22 times based on next fiscal year's earnings estimates and a price/earnings-to-growth (PEG) ratio) of just 0.4 (with a PEG under 1 usually considered undervalued), this is an undervalued growth stock to buy on this dip.

Geoffrey Seiler has positions in LVMH Moët Hennessy-Louis Vuitton and e.l.f. Beauty. The Motley Fool has positions in and recommends Ulta Beauty, Walmart, and e.l.f. Beauty. The Motley Fool has a disclosure policy.