Taken from Chit-Chat Money show notes:
"If we assume 40% revenue growth and an operating margin of 25%, P/OI looks like:
41 this FY
29 in FY 2025
21 in FY 2026
So, if we assume major operating leverage and strong revenue growth, ELF Beauty will be trading at a market multiple in two years. This assumes the market capitalization is unchanged.
If we assume revenue growth slows to 20% and operating margin stays at 15% (not a crazy scenario!), P/OI looks like:
68 this FY
56.6 in FY 2025
47.2 in FY 2026
Would ELF really be trading at 47.2 in FY 2026? Any investor needs to be asking this."
A lot of ELF’s success is attributed to its marketing strategy; last quarter NonGAAP SG&A expenses increased to 54.4% of revenue’s (up from 45.4% of revenues in Q2!) – so clearly they are investing a lot in marketing to stay ahead (as expected) and they will need to continue to spend on SG&A as they now try to expand internationally. Clearly they will not keep growing at 85%, and considering their high SG&A spending (which is not going to come down anytime soon), I think there is a reasonable possibility that Operating Income margin does increase much over the next 2 years.
(I don’t own ELF)