What Happened?
Shares of cosmetics company e.l.f. Beauty (NYSE:ELF) fell 18% in the morning session after President Trump announced "reciprocal tariffs" on all US imports, set at a minimum rate of 10%.
From clothing brands and electronics makers to the e-commerce sites that move their goods, companies built on global supply chains took the biggest hit. Stocks with heavy exposure to Asia were especially hard-hit, as the new tariffs threatened the growth and profits of firms with factories in the region. Vietnam, central to many companies' production plans, faced a 46% tariff. Cambodia and Indonesia were also in the crosshairs, with tariff rates of 49% and 32%. These measures could significantly erode the competitiveness of goods produced in those regions. For example, reduced production volumes would negatively affect the sales growth of all companies benefiting from these manufacturing hubs.
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What The Market Is Telling Us
e.l.f. Beauty’s shares are extremely volatile and have had 47 moves greater than 5% over the last year. But moves this big are rare even for e.l.f. Beauty and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was about 2 months ago when the stock dropped 27.4% on the news that the company reported disappointing fourth-quarter 2024 results. Its EPS and EBITDA missed. Due to weak demand trends observed earlier in the year, it lowered its full-year revenue, EPS, and EBITDA guidance, sending shares lower.
On the other hand, e.l.f. Beauty blew past analysts' revenue expectations this quarter, but markets are forward-looking, and may likely raise concerns about the revised growth forecast. Overall, this was a weak quarter.
Following the results, Morgan Stanley downgraded the stock from Buy to Hold adding "We are downgrading ELF to Equal-weight post Q3 results last night, which were overshadowed by ELF lowering implied Q4 guidance significantly, confirming January US scanner data weakness.".
e.l.f. Beauty is down 54.1% since the beginning of the year, and at $56.41 per share, it is trading 74.1% below its 52-week high of $218 from June 2024. Investors who bought $1,000 worth of e.l.f. Beauty’s shares 5 years ago would now be looking at an investment worth $6,715.
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