e.l.f. Beauty, Inc. (ELF) and Revlon, Inc. (REV) are two prominent companies in the global cosmetics industry. ELF is a multi-brand beauty company that offers cruelty-free cosmetics and beauty products for eyes, lips, and facial skincare products. It has a market capitalization of $1.61 billion. On the other hand, with a market cap of $611.72 million, REV manufactures, markets, and sells beauty and personal care products that include color cosmetics, hair color, beauty tools, fragrances, skincare, antiperspirant deodorants, and beauty care products. Both the companies sell their products through specialty cosmetics stores, retailers, e-commerce platforms, and independent distributors.

Mask mandates and travel restrictions led to the cosmetics industry witnessing an 8% year-over-year decline in sales last year. However, consumers’ shift to organic products and new beauty trends has been helping the industry rebound this year. Moreover, increased advertising and e-commerce sales are driving the industry’s growth.

Rising consumer spending and increasing foot traffic in brick-and-mortar stores should drive the industry’s sales growth this holiday season. The global cosmetics market is expected to grow at 5.3% CAGR and reach $463.50 billion by 2027. So, both ELF and REV should benefit.

In terms of their past month’s performance, REV is a winner with 8.8% gains versus ELF’s negative returns. But which of these stocks is a better pick now? Let us find out.

Recent Financial Results

For the fiscal first quarter ended September 30, 2021, ELF’s net sales increased 27% year-over-year to $91.86 million. The company’s gross profit came in at $57.99 million, representing a 23% rise from the prior-year period. ELF’s operating income came in at $7.44 million, up 278.2% from the prior-year period. While its adjusted net income increased 39.3% year-over-year to $11.27 million, its adjusted EPS increased 31.3% to $0.21. The company had $41.69 million in cash and cash equivalents as of September 30, 2021.

For the fiscal third quarter ended September 30, 2021, REV’s total adjusted net sales increased 9.2% year-over-year to $521.10 million. The company’s adjusted gross profit came in at $300 million, marking a 20.8% year-over-year improvement. Its adjusted operating income came in at $47.30 million, representing a 230.8% rise from the prior-year period. REV’s adjusted net loss came in at $40.20 million for the quarter, up 30.5% from the year-ago period. Its adjusted EPS increased 27.6% year-over-year to $0.74. The company had $73.30 million in cash and equivalents as of September 30, 2021.

Past and Expected Financial Performance

ELF’s EBITDA has increased 25.1% over the past year. Analysts expect ELF’s revenue to grow 17% year-over-year in the current year and 7.1% next year. The stock’s EPS is expected to grow at a 7.2% rate per annum over the next five years.

In comparison, REV’s EBITDA has increased 144.9% from the prior-year period. The stock’s revenue is expected to grow 10.8% year-over-year in the current year and 9.1% next year. REV’s EPS is expected at a rate of 5% per annum over the next five years.

Valuation

In terms of forward EV/Sales, ELF is currently trading at 4.39x, 132.3% higher than REV’s 1.89x. In terms of forward EV/EBITDA, REV’s 13.28x compares with ELF’s 23.35x.

Profitability

REV’s trailing-12-month revenue of $2.09 billion is 5.7 times ELF’s $370.14 million. REV is also more profitable with a 4.1% return on total capital versus ELF’s 3.8%.

POWR Ratings

While REV has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, ELF has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.  

REV has an A grade for Growth, which is consistent with its impressive year-over-year earnings growth. REV’s EBITDA has grown 144.9% from the prior-year period. However, ELF’s B grade for Growth signifies its relatively lower earnings performance. ELF’s EBITDA grew 25.1% over the past year.

REV has a B grade for Value, which is in sync with its lower-than-industry valuation ratios. REV has a 0.29x forward Price/Sales, 79.1% lower than the 1.39x industry average. ELF’s D grade for Value reflects its overvaluation. ELF’s 4.31x forward Price/Sales is 211.1% higher than the industry average of 1.39x.

Of the 63 stocks in the A-rated Fashion & Luxury industry, ELF is ranked #59, while REV is ranked #20.

Beyond what we have stated above, our POWR Ratings system has also rated ELF and REV for Sentiment, Stability, Quality, and Momentum. Get all REV ratings here. Also, click here to see the additional POWR Ratings for ELF.

The Winner

Besides their reasonably-priced portfolio of skin and hair care products, increased spending on advertising has enabled ELF and REV to gain a wide market reach over the past year. Moreover, surging demand for cosmetics is expected to benefit them this holiday season. However, lower valuation and higher profitability make REV a better buy currently.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry.

ELF shares were trading at $29.88 per share on Friday afternoon, down $0.97 (-3.14%). Year-to-date, ELF has gained 18.62%, versus a 21.30% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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