We recently compiled a list of the 10 Best Skincare Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where e.l.f. Beauty, Inc. (NYSE:ELF) stands against the other skincare stocks.
According to NielsenIQ, the global beauty market is expected to increase by 7.3% annually to reach $1 trillion in 2025, with Latin America by 19.1% and Africa-Middle East by 27.1% leading the way. Since TikTok Shop is the eighth-largest health and beauty shop in the US and generates around $1 billion in sales, e-commerce now accounts for 41% of US beauty sales. Nevertheless, 43% of customers believe that anti-theft methods like locked shelves discourage them from returning to a store. The fragrance and bath & shower segments drove the US beauty market’s 6.2% sales growth in 2024. Boomers choose product efficacy and anti-aging remedies, while Gen Z stresses skincare and values-driven companies. As a result, brands must implement data-driven generational strategies. To retain customer trust and relevance across changing demographics, successful beauty players will strike a balance between innovation and sustainability, integrating digital and physical shopping, and guaranteeing inclusivity and transparency.
On February 12, 2025, Circana reported that sales in the US beauty industry have increased for the fourth consecutive year. According to the report, mass-market beauty sales rose by 3% in 2024, while prestige beauty sales climbed 7% year over year to $33.9 billion. The fastest-growing prestige category was fragrance, which now accounts for 28% of prestige beauty sales and is the second-largest prestige category with double-digit unit growth and dollar sales up 12%. The growth rates for eau de parfums and parfums were 14% and 43%, respectively. Sales of high-end products surged by 12%, while sales of body sprays and hair fragrances jumped by 94% and 32%.
Specifically, skincare concluded the year as the slowest-growing category in the prestige market, with dollar sales up 2% and units expanding slightly faster—and a modest rise in both metrics in the mass market. Since top-performing masstige brands that are distributed across markets are propelling growth in both, skincare has emerged as the market that is best aligned across mass and prestige. Face cleansers and lip treatments were among the standout categories in the premium market. Body care products, such as lotions, creams, cleansers, and hand soaps, continued to outperform the facial market.
As per Circana’s report, the beauty industry continues to evolve as a result of the “skinification” of beauty, which involves incorporating skincare ingredients into body care, hair care, and makeup products. The first half of 2024 saw a 7% spike in U.S. skincare sales, with unit sales up 10% YoY. Body care and sun care are driving this growth, outpacing facial care as retinoids, AHAs, and vitamin C penetrate into these markets. Furthermore, this innovation drove double-digit growth in makeup sales, driven by serum foundations that give skin benefits and coverage and are packed with niacinamide, hyaluronic acid, and squalane. Hybrid makeup-skincare products are sought after by more than half of American consumers, with 60% of Gen Z and Millennials giving them top priority. Even the haircare industry has adopted skinification; salicylic and glycolic acids are popular for scalp care, and fragrance companies are experimenting with alcohol-free formulas to cater to sensitive skin. Brands must innovate and educate to remain competitive as consumers’ demands for multipurpose, benefit-driven products grow.
Larissa Jensen, global beauty industry advisor at Circana, stated:
“The beauty industry’s resilience continues to shine as consumers turn to beauty to not only look, but also feel good.” “With beauty products intertwined with consumers’ emotional needs and wellness routines, maximizing this opportunity will go a long way to ensure a healthy future for our industry.”
Looking ahead, according to Wendy Nicholson, managing director of Baird, commented:
“Skincare is one area where I think we’ll continue to see breakthroughs.”
She believes that when brands adapt to the change, consumer expenditure on injectibles and other treatments is likely to result in new product development.
A close up of the lip and eye products from the company on a model in a fashion and beauty shoot.
Methodology:
We sifted through holdings of Beauty ETFs and online rankings to form an initial list of 20 skincare stocks. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 1,009 hedge funds in Q4 2024 to gauge hedge fund sentiment for stocks. We have used the stock’s Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
e.l.f. Beauty Inc. (NYSE:ELF)
Number of Hedge Fund Investors: 35
The multi-brand beauty company and one of the Best Beauty Stocks, e.l.f. Beauty, Inc. (NYSE:ELF) was a huge success for a large portion of 2024, recording impressive growth and leveraging a new generation of Gen Z consumers who are seeking high-quality products at competitive prices. Younger consumers are especially drawn to the company’s dedication to vegan and cruelty-free products.
The fiscal second quarter of 2025 saw a 31% YoY growth in revenue, and the business recorded gains in market share and sales for the 24th consecutive quarter. Although e.l.f. Beauty, Inc. (NYSE:ELF) spends much on marketing and digital costs, along with some other operating expenses, it also has high gross margins. Most importantly, e.l.f. Skin continued to outperform the category, becoming a top ten skincare brand, and the acquisition of Naturium boosted their skincare penetration to 18% of total retail sales.
e.l.f. Beauty, Inc. (NYSE:ELF) has an excellent market position and room to grow. The management team of the company has effectively distinguished the brand through client loyalty, market share capture, and innovation. Management is hopeful about future gains brought about by improvements to shelf space and improved marketing activities, despite recent earnings showing some shortcomings due to high year-over-year comparisons and underperforming new products. Furthermore, there are a lot of growth prospects for the business, especially in international markets and skincare.
Polen US Small Company Growth Strategy maintained strong confidence in e.l.f. Beauty Inc.’s (NYSE:ELF) long-term growth potential and market share expansion. It stated the following in its Q3 2024 investor letter:
“The Portfolio’s top detractors were Progyny, elf Beauty, and Alarm.com. E.l.f. Beauty, Inc. (NYSE:ELF), a discount beauty company focused on cosmetics and skincare, is a new addition to the Portfolio this quarter. Please see Portfolio Activity below for further detail. We are intrigued by the company’s impressive track record for growth, margins, and returns on capital. While elf has reported significant results all year, shares came under pressure, in our view, as short-term investors primarily appeared to anticipate a slowdown in revenue growth, possibly due to investor concerns of market saturation, economic conditions, and valuation concerns, among other factors. While we are confident in how we underwrote our initial investment for returns above the portfolio average, the stock has come under even more pressure than we anticipated. We used this weakness to add to our position. We’re intrigued by the strength elf has experienced across its retailer and ecommerce channels, particularly in taking market share in a challenging consumer environment, given their relatively inexpensive prices vs. competitors.
elf Beauty, described above, is a discount beauty company focused on cosmetics and skincare. We find the company’s reputation for quality, innovation, and prices below mass cosmetics brands to be uniquely positioned. While this combination of innovation, quality, and value has led to compelling growth, we still believe it’s early days for the company. elf’s brand awareness is significantly less than that of more prominent players; it is still adding shelf space, expanding its product portfolio, and entering the skincare market. elf is also still a US-focused business, with some early signs of international success. The company’s financial profile is strong, and we expect EPS to grow by 25% over the long term.”
Overall ELF ranks 9th on our list of the best skincare stocks to buy according to hedge funds. While we acknowledge the potential for ELF as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ELF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.