If You Had Bought e.l.f. Beauty (NYSE:ELF) Shares Three Years Ago You'd Have Earned 68% Returns

By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, the e.l.f. Beauty, Inc. (NYSE:ELF) share price is up 68% in the last three years, clearly besting the market return of around 53% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 32%.

View our latest analysis for e.l.f. Beauty

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the three years of share price growth, e.l.f. Beauty actually saw its earnings per share (EPS) drop 43% per year.

So we doubt that the market is looking to EPS for its main judge of the company's value. Therefore, we think it's worth considering other metrics as well.

It may well be that e.l.f. Beauty revenue growth rate of 4.3% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for e.l.f. Beauty in this interactive graph of future profit estimates.

A Different Perspective

e.l.f. Beauty produced a TSR of 32% over the last year. While you don't go broke making a profit, this return was actually lower than the average market return of about 41%. On the other hand, the TSR over three years was worse, at just 19% per year. This suggests the company's position is improving. If the share price is up as a result of improved business performance, then this kind of improvement may be sustained. It's always interesting to track share price performance over the longer term. But to understand e.l.f. Beauty better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for e.l.f. Beauty (of which 1 is a bit unpleasant!) you should know about.

But note: e.l.f. Beauty may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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