While Law & Order star Ice-T told me he likes to invest in himself, I think putting some money to work in the cosmetics industry could be lucrative, too.
To be sure, Ulta Beauty (ULTA) has received all of the attention from Wall Street over the last two years. And for good reason: The cosmetics retailer has been a growth juggernaut, plays toward the value end of a growing industry and has a business model that includes salon services (which gets people into the often-empty mall). But if you haven't done so already, it's time to put e.l.f. Beauty (ELF) on your shopping list for a variety of reasons.
The seller of cheaply priced makeup and face scrub at Target (TGT) , Walmart (WMT) and Gap's (GPS) Old Navy blew Wall Street away with its fourth-quarter results on Wednesday. Fourth-quarter sales surged 17% from the prior year -- to $76.4 million. Wall Street was looking for sales of $74 million. Earnings, adjusted for one-time items, rose 36% to $0.19 a share, trouncing consensus forecasts for $0.13 a share.
For this year, e.l.f. Beauty sees the good times continuing to roll. Sales and earnings per share are expected to increase as much as 28% and 19%, respectively, from last year.
Now, I have gotten to know e.l.f. chairman and CEO Tarang Amin -- having talked to him on several occasions since the company's IPO in late September 2016. Each time, I have come away impressed with his depth of knowledge on today's evolving cosmetics industry (he has been in the space one way or another over 25 years) and the role e.l.f. is playing in it. The company is, in fact, doing the disrupting in the space right now, propelled by its insane number of new product launches each year (90 last year, for example), sharp price points and the overall quality of what it sells for the price.
"While the environment is tough for... retailers, one of the constants for them is that beauty is an area of focus," Amin told me Wednesday evening. "One of the big advantages for us is that we have this makeup enthusiast that is our core customer. For her, makeup isn't a discretionary purchase. She loves everything about it -- from shopping for it to trying on new things." From the floor of the New York Stock Exchange last September (video above), Amin told me e.l.f.'s customers have a "bottomless makeup" bag. At the time, I thought it was just a catchy line, but it's indeed proving to be true.
Amin added,"When I look at my 22-year old daughter vs. her mom -- her mom used to go to department stores and get makeovers and that's how she learned about cosmetics. My daughter is online all the time, sharing tips with friends and looking for the latest stuff."
These are the types of names you want to put money to work in right now -- hidden gems that have gotten unfairly indicted by Wall Street. In the minds of Wall Street, e.l.f. is simply selling stuff in traffic starved Target. But, the company is anything but dying and troubled, and it could be a name worthy of chasing here on Thursday's more than 16% surge.