Is e.l.f. Beauty Stock a Hidden Gem in the Cosmetics Aisle?​

The cosmetics segment of the consumer staples sector is interesting. The products aren't technically necessities, but sales are still very resilient. E.l.f. Beauty (NYSE: ELF) has positioned itself as a lower-priced alternative to both high-end and mass-market makeup brands. On one hand, that has been a huge positive; on the other hand, it hasn't translated into reliable earnings growth.

Impressive results from e.l.f. Beauty

On a year-over-year basis, e.l.f. Beauty has grown its quarterly sales for 27 consecutive quarters. That would be a pretty impressive achievement for any company, but it is especially impressive given that e.l.f. Beauty's makeup competes with some of the world's largest consumer staples makers, including industry giants like Procter & Gamble and Estee Lauder. The key differentiation is that e.l.f. Beauty's products come in at the low end of the price curve.

Image source: Getty Images.

In fact, the company's products aren't just cheaper than high-end makeup alternatives; they are even a little cheaper than most mass-market makeup products. It shouldn't be too surprising to find that the company is a leader among teen consumers. But the big story is that e.l.f. Beauty has been gaining market share for years. This is an interesting dynamic, since teen consumers age into adult users who will likely have an affinity for e.l.f. Beauty products.

It isn't uncommon for consumers to move up to higher-priced brands as they age and their finances improve. However, it also wouldn't be surprising to see e.l.f. Beauty end up a core mainstay, with higher-priced products used as complementary additions meant for special occasions.

Focusing on growth, not earnings

On the positive side, e.l.f. Beauty is a profitable business and has been for quite some time. That said, it is very clear that management is focused on growth, with a strong push into international markets currently underway. This is likely a stock best suited to long-term growth investors who don't mind holding for five years or longer, given the company's focus on growth and business expansion.

The e.l.f. Beauty brand is becoming increasingly important as it continues to gain market share. While tariffs and inflation are profitability headwinds right now, the company appears well-positioned to benefit from consumers who are tightening their budgets. In fact, cost-conscious consumers could actually help the company over the long term if low prices allow it to reach more customers. In other words, today's industrywide headwinds could further fuel the company's-long term opportunity when it shifts from a focus on growth to a focus on profitability.

Reuben Gregg Brewer has positions in Procter & Gamble. The Motley Fool has positions in and recommends e.l.f. Beauty. The Motley Fool has a disclosure policy.