In the current market session, e.l.f. Beauty Inc. (NYSE:ELF) share price is at $123.47, after a 1.67% drop. Over the past month, the stock increased by 56.17%, but over the past year, it actually fell by 40.99%. With good short-term performance like this, and questionable long-term performance, long-term shareholders might want to start looking into the company's price-to-earnings ratio.
A Look at e.l.f. Beauty P/E Relative to Its Competitors
The P/E ratio measures the current share price to the company's EPS. It is used by long-term investors to analyze the company's current performance against it's past earnings, historical data and aggregate market data for the industry or the indices, such as S&P 500. A higher P/E indicates that investors expect the company to perform better in the future, and the stock is probably overvalued, but not necessarily. It also could indicate that investors are willing to pay a higher share price currently, because they expect the company to perform better in the upcoming quarters. This leads investors to also remain optimistic about rising dividends in the future.
e.l.f. Beauty has a better P/E ratio of 65.4 than the aggregate P/E ratio of 36.15 of the Personal Products industry. Ideally, one might believe that e.l.f. Beauty Inc. might perform better in the future than it's industry group, but it's probable that the stock is overvalued.
In conclusion, the price-to-earnings ratio is a useful metric for analyzing a company's market performance, but it has its limitations. While a lower P/E can indicate that a company is undervalued, it can also suggest that shareholders do not expect future growth. Additionally, the P/E ratio should not be used in isolation, as other factors such as industry trends and business cycles can also impact a company's stock price. Therefore, investors should use the P/E ratio in conjunction with other financial metrics and qualitative analysis to make informed investment decisions.