Can Hailey Bieber Bring e.l.f. Stock Back to Life?

E.l.f. Beauty (NYSE: ELF) stock has been through the wringer over the past few years, and it's down a whopping 40% over the past year. That's despite robust growth over that time, and a brand that continues to surge and gain market share.

The market has been worried about rising prices and slowing growth, but smart investors can see that e.l.f. has a long, strong future. In tune with that, the company just acquired Rhode, the cosmetics line developed by model and social media star Hailey Bieber. That announcement was made along with e.l.f.'s fourth-quarter earnings report, which beat analyst expectations, and the market gave the company an enthusiastic thumbs-up. Let's see why, and what this acquisition does for e.l.f.

Hailey Bieber, e.l.f. savior?

A few highlights from e.l.f.'s fiscal 2025 fourth-quarter (ended March 31) report: Revenue increased 4% year over year to $332.6 million, beating analyst expectations of $326.7 million, and adjusted earnings per share (EPS) were $0.78, above estimates of $0.72. Earnings beats are great, but 4% growth is a massive slowdown for e.l.f., which had been posting high double-digit growth for a long time. A company reporting this kind of growth isn't going to be able to carry a high valuation, so it makes sense that the price has come down in tandem with performance.

Furthering the market's uncertainty about e.l.f., management declined to provide guidance. The tariff situation is too unclear, and e.l.f. has high exposure to the impact because 75% of its production comes from China. CEO Tarang Amin said that the company is combating the potential tariff situation in three ways. First, it's raising prices on products by $1. He noted that it's only the third price increase in its 21-year history, and in the past, customers have been able to absorb increases.

Image source: Getty Images.

Next, it's diversifying its supply chain. Amin pointed out that it's already on top of that, because just a few years ago, 100% of production was sourced in China. It's continuing to build out a more diverse supply chain.

Finally, it's also diversifying its business. It's making a bigger push internationally, which is still a small part of the whole, but growing faster, with sales up 60% in fiscal 2025. Six years ago, international represented 10% of the business, and today that's reached 20%.

Another way it's broadening the business is by expanding the brand portfolio. And that's where Bieber and Rhode come in.

How this helps e.l.f.

I'll admit, I didn't know too much about Rhode before hearing about this deal. But a quick perusal of its product line and reviews reveals that its brand very much caters to e.l.f.'s target market of younger, social-media-conscious customers, and its approach to product development is in sync with e.l.f.'s, too. For example, it sells a popular, patented silicone phone case designed to hold the company's lip gloss. This is in line with e.l.f.'s product line that meets the needs of its particular shoppers in innovative ways. "E.l.f. Beauty found a like-minded disruptor in Rhode," Amin said in a press release.

What's different about Rhode is its prices. A big part of e.l.f.'s model, and popularity, is its cheap prices. It prides itself on offering products that compete with luxury brands with some of the lowest prices on the market. Rhode is a luxury brand.

That does a few things for e.l.f. First, it helps with the gross margin. Luxury brands with premium prices tend to have higher gross margins. Next, it gets e.l.f. into the exclusive Sephora shops, owned by luxury conglomerate LVMH, giving it exposure to Sephora's global customers.

Finally, this could be the beginning of a huge cosmetics company that can compete with larger competitors like Estee Lauder and L'Oreal, both of which own several brands. This strategy works for mature companies that bring new brands in to boost revenue and relevance. Because they're so large and have well-established distribution systems, they can add new brands with streamlined systems and wider margins. E.l.f. acquired skincare company Naturium in 2023, so it's clearly moving in this direction.

Is this the beginning of e.l.f.'s rebound?

E.l.f. is the most popular cosmetics brand for teens, and it's been gaining market share while the industry itself has declined over the past few years.

The acquisitions strategy is a tried-and-true method to generate growth for companies that are slowing down, and this one in particular brings clear benefits to e.l.f. Rhode has doubled its consumer base over the past year and generated $212 million in sales. E.l.f. is paying $800 million for the company, with another $200 million potentially based on growth. With e.l.f.'s robust distribution system, that could speed up, creating value for e.l.f. and its shareholders quickly.

E.l.f. has many levers to pull to boost growth, from new brands to international sales to innovation in its product line. I don't think it needs Hailey Bieber to save it, but this acquisition looks like a positive step in its journey and another reason to be confident in its long-term potential.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends e.l.f. Beauty. The Motley Fool has a disclosure policy.