IPO Quiet Period Expiration - e.l.f. Beauty

| About: e.l.f. Beauty (ELF)

Summary

The 25-day quiet period for e.l.f. Beauty will come to an end on Oct. 17, allowing the firm's IPO underwriters to publish reports and recommendations on Oct. 18.

Our research has found that these first reports released by underwriters tend to be positive and lead to a temporary boost in stock price.

e.l.f. Beauty has performed well since its IPO, and we see the end of its quiet period as a new chance to buy into this tantalizing firm.

Our price target for this event is $28.15.

Event Background

The 25-day quiet period for e.l.f. Beauty (NYSE:ELF) will come to an end on Oct. 17, allowing the firm's IPO underwriters to publish reports and recommendations on Oct. 18. We previewed e.l.f. Beauty's IPO on 9.21 here and recommended investors consider purchasing shares in its IPO.

e.l.f. priced at $17, above its initial range of $14-$16. Through its IPO, the company raised $142 million, selling 8.3 million shares. On the first day of trading, the stock jumped 55.6% and is now trading at $25.57 (10.11.2016 close).

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(e.l.f. Beauty Stock Price Data, Edgar Pro-Online)

Products Overview

e.l.f. Beauty provides high-quality cosmetic products at low prices. The majority of the company's items sell for $6 or less. The company sells its products in national and international retailers, online and in e.l.f. stores.

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(Source)

Its largest retail customers are Target (NYSE:TGT), Walgreens (NASDAQ:WBA) and CVS (NYSE:CVS). Products sold through these stores make up a significant percentage of its revenue.

In 2015, net sales increased 32% year-over-year to $191.4 million; adjusted EBITDA increased from $28.1 million in 2014 to $46.2 million in 2015, a 64 percent increase.

IPO Performance and Financial Highlights

ELF's IPO was a much-anticipated event. It was in high demand, priced above its initial price range and returned over 50% on its first day of trading. Since then, the stock has moved up steadily (see chart above).

ELF was founded in 2004 and since then has shown a committed focus as well as impressive effectiveness in bringing high-quality cosmetics to customers at low price points. The company has a solid history of earnings and revenue growth. From a net loss of $2.9 million in 2014, e.l.f. grew to a net profit of $4.4 million in 2015. In 2015, e.l.f. reported Adjusted EBITDA margin of 24 percent and net income margin of 2 percent.

While the industry is highly concentrated (60% of cosmetic retail sales in 2015 were generated by L'Oreal S.A. (OTCPK:LRLCF) (OTCPK:LRLCY), Estée Lauder (NYSE:EL), Procter & Gamble (NYSE:PG), Revlon Inc. (NYSE:REV) and Shiseido (OTCQX:SSDOY), ELF (price-to-sales of 5.3) is priced generally in line with smaller competitor ULTA (price-to-sales of 3.5). In addition, niche beauty products have recently been increasing in demand, relative to high profile brands.

Executive Management Team

Tarang Amin serves as the Chief Executive Officer and brought in concurrence with the acquisition by TPG Growth, LLC, because of his significant experience in consumer products. He has been with the company since 2014. He holds both a Bachelor's degree and a Master of Business Administration from Duke University.

John Bailey serves as President and Chief Financial Officer at e.l.f. Beauty. He joined the company in August 2015 and is also a Principal at TPG Growth LLC. Mr. Bailey graduated from the University of Michigan Law School and holds a Bachelor of Business Administration.

The co-founder and former CEO of e.l.f. Beauty, Joseph Shamah, has served on the board of directors since 2012. He is a graduate of New York University and served as the company's CEO until January 2014.

Conclusion: Large and Powerful Team of Underwriters Could Boost Share Price - Buy Ahead of Holding Period Expiration

e.l.f. Beauty is backed by a large and powerful team of underwriters, which include: JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Piper Jaffray, Wells Fargo (NYSE:WFC), Williams Blair, Cowen, BMO, Stifel and SunTrust (NYSE:STI).

Since e.l.f. Beauty went public, these firms have been restricted from releasing reports. The quiet period expiration will mark the end of these restrictions and most likely lead to a flood of positive reviews and recommendations on the company.

Our research has found significant above-market returns in a short window of time surrounding the quiet period expiration.

We recommend investing prior to ELF's QP expiration to profit from these expected above-market returns.

Our price target for this event is $28.10.

Disclosure: I am/we are long ELF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.