e.l.f. Beauty’s Growth Story Faces a Market Reality Check

Despite delivering another quarter of impressive financial results, e.l.f. Beauty Inc. (NYSE: ELF) saw its shares decline last week, highlighting a market sentiment that strong growth alone is no longer sufficient to satisfy investors. The cosmetics company reported its 28th consecutive quarter of growth for Q3 of fiscal 2026, surpassing analyst expectations, yet the stock reaction was notably muted.

For the quarter ending December 31, 2025, e.l.f. Beauty announced a 38% year-over-year surge in net sales, reaching $489.5 million. A primary driver of this expansion was the recent acquisition of the brand Rhode, which contributed $128 million in net sales during the period. This single addition accounted for the majority of the company's top-line growth.

Profitability metrics also showed significant strength. Adjusted EBITDA soared 79% to $123.0 million. Furthermore, adjusted earnings per share (EPS) came in at $1.24, decisively beating consensus estimates. The company also expanded its market share within the color cosmetics category by an additional 130 basis points.

The "Beat and Drop" Phenomenon and Investor Concerns

In a classic "beat and drop" scenario, the stock price retreated in the trading sessions following the earnings release. This indicates that the outstanding operational performance was already fully priced into the shares, with investors having anticipated perfection.

Should investors sell immediately? Or is it worth buying elf Beauty?

Another point of investor scrutiny is the financial impact of the Rhode acquisition. The company's long-term debt ballooned to approximately $816.7 million as of the quarter's end, a substantial increase from $154.1 million a year earlier. While analysts, including those at UBS, raised their price target to $102, they maintained a neutral rating. They cited ongoing investor debate regarding the future growth trajectory of the core business beyond its recent acquisitions.

• Friday's Closing Price: $82.64
• 52-Week High: $105.00
• Relative Strength Index (RSI): 10.1 (deeply oversold)

Revised Guidance and the Path Forward

In response to the robust performance, management raised its full-year outlook for fiscal 2026. The company now expects net sales growth in the range of 22% to 23% for the year. The Rhode brand is projected to contribute an estimated $260 million to $265 million to the annual total.

The key question for the coming quarters is whether this upgraded forecast represents a conservative baseline with room for further upside, or if it signals an impending normalization of growth rates following a period of rapid, acquisition-fueled expansion. The market's reaction suggests investors are leaning toward the latter interpretation, demanding proof that organic momentum can be sustained.