1 Share of a Hyper-Growth Company with 120% Upside Potential, According to 1 Wall Street Analyst

Tech stocks are the clear winners among growth stocks, but it would be a shame for investors to miss out on other growth stocks because they aren’t looking in all the right places. If you wear makeup, there’s a surprising supply that could literally be under your nose: elf beauty (NYSE: ELF). If you don’t wear makeup, take a moment to look away from your computer chips and look around.

There isn’t always consensus on stocks on Wall Street, but there is here. 13 of 17 analysts call it a buy, while the remaining four call it a hold. None of them expect prices to go down. The lowest target price for Elf shares is 15% higher than today, and the highest is 120%.

Good consumer staples stocks can have an edge over great tech stocks—just ask Warren Buffett. elf is building a strong brand and gradually capturing market share. Let’s take a look at why these stocks are up 240% over the past three years and why they might be a good addition to your portfolio.

Unusual brand, loyal customers

Elf fills a niche as a mass brand for today’s beauty enthusiasts. The company uses social media to promote its affordable beauty products, including makeup, skin care and hair care, and consumers are attracted to its differentiated branding and innovative marketing touting its eco-friendly formulas.

In the first fiscal quarter of 2025, ending June 30, 2024, sales increased 50% year-over-year, an incredible performance under challenging circumstances. However, it was still a slowdown compared to previous quarters. For a time, Elf benefited from consumers switching to mass-produced cosmetics from expensive, luxury lines. This figure appears to be on the decline, with management forecasting annual growth of approximately 26%. This implies an even greater slowdown over the next three quarters.

The company also reported weak earnings with net income declining year over year. Management invests in its digital marketing campaigns, which are the foundation of its differentiated social media approach and relationship building strategy. The company also continues to promote its recently acquired skin care brand Naturium, which will impact near-term profitability.

These are short term factors. Seasoned investors will recognize that elf’s long-term prospects are extremely attractive. Despite the current challenges, elf is gaining market share across all of its segments, increasing color cosmetics market share by 2.6 percentage points in the first quarter at a time when many industry leaders are losing market share.

It has already found its niche in the field of decorative cosmetics, where it continues to gain momentum, and in the field of skin care the opportunities are even wider. It gained market share by 0.6 percentage points in the first quarter and moved from 13th place last year to 9th place this year, but it still only has 2% of the market. Naturium contributed 16 percentage points to Elf sales in the quarter. The company is also seizing opportunities in the international market, where sales grew 91% year-on-year. The company has recently launched or expanded deals in Mexico, Germany, Italy and several other countries.

This is an opportunity to buy on this dip.

elf shares are down 24% this year. However, the silver lining for new investors is that Elf’s share price has fallen from astronomical levels. The stock currently trades at a forward one-year price-to-earnings (P/E) ratio of 24, which is reasonable for a high-growth stock. It does deserve some premium for its capabilities, but it’s not surprising that the stock has fallen given the current pressures.

elf may continue to report lower profits, but management expects them to rise for the year. It raised its forecast for the first quarter, and curbing inflation could help it beat expectations.

In the long term, elf is well positioned to continue to grow and capture greater market share, launch new products and move up the beauty rankings. If you’re looking for a growth stock with tremendous long-term potential, elf is a great choice.

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*Stock Advisor returns as of October 28, 2024.

Jennifer Cybil has no position in any of the stocks mentioned. The Motley Fool has positions and recommends the elven beauty. The Motley Fool has a disclosure policy.