Buy: e.l.f. Beauty (ELF) Quantum Score: 79.3 Buy-up-to Price: $216.18 Position Size: No more than 4% of capital Risk Point: $132.68
e.l.f. Beauty (ELF) is one of those stocks that keeps popping up in my system.
It's what I call an outlier, having appeared on my system's Top 20 list of the highest quality stocks being scooped up by Big Money 34 times in the last 21 months. It is up 585% in that time, and all the data points to higher prices in the future.
The Oakland-based company makes cosmetic and skin-care products under its own brand name in addition to Well People and Keys Soulcare, created with singer Alicia Keys. The company name is an acronym of "eyes, lips, face."
Its self-proclaimed strategies are to build brand demand, power digital growth, lead innovation, drive productivity, and deliver profitable growth.
ELF has certainly been successful at that, more than doubling its market share since 2018 from 4.1% to 9.8%. Its products are highly popular among teens. I have three boys, but I know that skincare videos are all over social media these days.
All of these lead to the quantum trifecta we look for in a stock – outstanding fundamentals and growth, strong technicals, and those all-important Big Money inflows. That's one reason its quantitative ratings are excellent across the board.
Source: TradeSmith Finance and MAPsignals.com
The Quantum Score is outstanding at 79.3, and right in our target buy zone of 70 to 85. And I love the balance with the Fundamental Score and Technical Score almost identically strong.
(Reminder: As a Quantum Edge Pro member, you have access to this data on all of the stocks in my system. You can find the Quantum Score box on TradeSmith Finance Dashboard and simply enter the ticker symbol of the stock you want to analyze.)
Looking at those muscular fundamentals, we see one- and three-year sales growth of 47.6% and 27.8% respectively. The company has an outstanding history of accelerating sales growth.
Earnings have surged even more, jumping 174.4% in the last fiscal year and 115.7% over the last three years. That's due in part to ELF's solid 10.6% profit margin.
The company probably also benefitted from what's sometimes called "the lipstick effect" – meaning that people tend to keep spending on personal care products even when times are a little tough.
Growth is forecast to stay strong – we wouldn't be adding it otherwise. One-year sales growth is estimated to be 28%, with estimated one-year earnings growth of 21%.
That impressive growth has sparked an equally impressive run in the stock, which has gained nearly 150% in the past year, including a 112% shot higher since the market turned at the beginning of November.
That results in ELF's near-perfect Technical Score of 79.4 – strong but not overheated.
Shares trade near their one-year and three-month highs, are above their key 50-, 100-, and 200-day moving averages, and internal momentum metrics like stochastics are also strong.
In fact, the only negative in the technical rating is that the stock is down slightly this month. But that's our opportunity to buy on a pullback.
When it comes to Big Money support, ELF has it going on. Shares are 99.1% owned by institutions, which makes Big Money's activity even more important than usual. And you can see 25 Big Money buy signals (green bars) in the last 12 months.
Source: MAPsignals.com
You can also see four sell signals (red bars) during the volatile fall months, but that's neither surprising nor concerning given the entire market was under pressure during that time. And, in fact, when you're talking about a quality stock like ELF, those sell signals often mark a reversal higher on fundamentally superior stocks, which you can also see happened each time we saw one.
Buy ELF up to $216.18. Shares have pulled back about 11% off all-time highs earlier this month, which is a nice buying opportunity in a stock this strong with excellent upside potential over the coming months.
Our initial Risk Point is $132.68. If the stock were to unexpectedly close below that price in the future, I will be in touch to let you know what to do next. Our TradeSmith VQ Risk Point also adjusts higher as shares increase in value.
A quick reminder that the stock market is closed tomorrow on Good Friday. You have time to add shares today, or next week should also be fine if you decide to buy.
Our TradeSmith offices are closed tomorrow, and I will be back in touch Monday with your next market update. I'll also have a new video issue next week talking about the opportunity in ELF, our portfolio overall, and the market heading into the second quarter.
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