What Happened:
Shares of cosmetics company e.l.f. Beauty (NYSE:ELF) jumped 6.7% in the afternoon session after major indices soared as yields declined after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of May 2024 came in better than expected at 3.3% year on year (versus analysts' expectations for 3.4%). The data also revealed that inflation was flat (unchanged) month on month. The inflation results benefitted from a 2% decline in the energy index, while shelter inflation remained sticky (up 0.4% m/m and 5.4% y/y). Sticky inflation is exactly what has delayed the Fed's planned rate cuts in 2024, with some market participants likely worried that inflation might stay higher for longer. Today's report eased those worries a bit.
Separately, the Federal Open Market Committee kept interest rates at 5.25% to 5.50% following its June 2024 monetary policy meeting while also projecting no more than one rate cut in the second half of the year. The committee noted in its post-meeting statement that, "In recent months, there has been modest further progress toward the Committee's 2 percent inflation objective."
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Is now the time to buy e.l.f.? Access our full analysis report here, it's free.
What is the market telling us:
e.l.f.'s shares are not very volatile than the market average and over the last year have had only 28 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business. The previous big move we wrote about was 20 days ago, when the company gained 22% on the news that the company reported first-quarter earnings results. e.l.f. blew past analysts' EPS expectations. Its revenue (up 71% y/y) also outperformed Wall Street's estimates, driven by higher unit volumes and mix. In FY'24, the company surpassed the milestone of $1B in annual sales. On the other hand, its operating margin missed analysts' expectations, and its full-year revenue and earnings guidance missed Wall Street's estimates. The company provided conservative guidance partly due to concerns about macro uncertainty, with the FY'25 sales forecast pointing to a significant growth deceleration and implying 21.1% growth (vs. 77.2% in FY2024). Overall, this was a mixed yet decent quarter for e.l.f.
e.l.f. is up 42.9% since the beginning of the year, and at $200.09 per share it is trading close to its 52-week high of $217.40 from February 2024. Investors who bought $1,000 worth of e.l.f.'s shares 5 years ago would now be looking at an investment worth $16,466.
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