A Spot of Shopping: Two Growth Stocks

One does occasionally stumble upon a perfectly serviceable little company, still in its infancy, with the potential to become… well, not exactly a titan, darling, but certainly a moderately successful enterprise. The trick, naturally, is to acquire a stake before the market decides it’s terribly clever and inflates the price to an absurd degree. These periods of fashionable pessimism, you see, present a rather splendid opportunity for the discerning investor.

We’ve been having a look at two such concerns, both of which have suffered a rather unseemly drop in valuation, despite continuing to demonstrate a commendable – if not entirely unprecedented – growth in sales. A bit like a promising debutante who’s had a rather bad season, really. Let’s see if we can’t salvage something from the wreckage.

E.l.f. Beauty: Down 67%

E.l.f. Beauty, one gathers, is becoming something of a force in the cosmetics world. Their strategy, if one can call it that, is simply to offer perfectly adequate products at prices that don’t require a second mortgage. In these days of rampant inflation, that’s rather clever, isn’t it? If they continue to report figures that aren’t entirely dreadful, this little dip shouldn’t last too long. Though, one never knows with the market, does one?

They’re scaling up, you see, from a charming little upstart to a… well, a slightly larger upstart. It’s not easy, competing in that ghastly, overcrowded market. Apparently, they own four of the fourteen cosmetics brands that have managed to surpass $200 million in annual retail sales. Over the last three years, revenue has gone from a paltry $578 million to a rather more respectable $1.52 billion. Not bad, not bad at all.

They’re gaining market share and shelf space at Walmart, which, let’s be honest, is a rather significant achievement. In cosmetics, they’re growing about twice as fast as their competitors in the US market. Their skincare products are even faster, suggesting consumers are starting to associate the e.l.f. logo with quality at a price that doesn’t induce palpitations. Overall, net sales grew 38% year over year to $489 million in the recent quarter. Impressive, given the rather… fickle nature of consumer spending. The stock is down 67% from its highs, bringing the forward P/E multiple to 24. Perfectly reasonable for a fast-growing consumer brand, wouldn’t you agree?

On Holding: Down 29%

On Holding, one observes, is making a bit of a splash in the footwear market. Uncertainty over near-term demand trends has pulled the stock down 31% from its recent highs. Looking at the bigger picture, this emerging shoe brand still shows tremendous growth potential, with sales surging 35% year over year on a constant-currency basis in the most recent quarter. One almost feels sorry for the short sellers.

A real sign of their strength is pricing power. Their strong growth last quarter was a pivotal test of the brand’s ability to maintain its premium-priced positioning in the marketplace. Their ability to sustain full selling prices without resorting to discounting, as other brands do, indicates a durable brand. A bit like a well-bred poodle, really – holding its head high, despite the surrounding chaos.

Of course, keeping prices up and maintaining strong sales is only possible if you’ve got a quality product. On doesn’t have the massive marketing budget of its larger footwear competitors, yet consumers are clearly flocking to its unique cushioning technology. It shows that consumers are willing to pay up for superior comfort. One suspects they’re also rather tired of the same old, dreary designs.

The stock is trading down 29% from its recent highs, bringing the forward P/E down to 26. This is an attractive valuation for a brand growing sales and earnings by more than 30% year over year. One might even consider adding a few shares to the portfolio. Though, of course, one never knows, does one?

2026-02-13 12:15

E.l.f. Beauty: Down 67%

On Holding: Down 29%

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