Marathon Capital Management founder Mario Cibelli (Trades, Portfolio) disclosed earlier this week he upped his stake in e.l.f. Beauty Inc. (ELF, Financial) by 18.75%.
Known for focusing on less efficient portions of the market, the activist investor’s New York-based firm relies on fundamental research to find long-term opportunities among undervalued stocks that he believes will double in three to five years.
According to GuruFocus Real-Time Picks, a Premium feature, the guru purchased 372,700 shares of the Oakland, California-based cosmetics company on April 30, impacting the equity portfolio by 2.96%. The stock traded for an average price of $13.07 per share.
He now holds 2.36 million shares, which, at 15.36% of the equity portfolio, represents his largest holding as of the end of fourth-quarter 2019. GuruFocus data shows Cibelli has lost an estimated 27.35% on the investment since establishing it in the fourth quarter of 2017.
The beauty company, which sells its makeup at largely affordable price points, has a $622.98 million market cap; its shares were trading around $12.47 on Tuesday with a forward price-earnings ratio of 69.44, a price-book ratio of 2.57 and a price-sales ratio of 2.28.
The price chart shows the stock is trading near its price-book ratio but above its price-sales ratio.
On March 30, the company reaffirmed its fiscal 2020 guidance in spite of the potential impacts the Covid-19 pandemic has had on its sales. It expects 7% to 8% growth in net sales to between $274 million and $277 million and for adjusted earnings to range from 55 cents to 59 cents per share.
“We are seeing a change in consumer behavior due to the COVID-19 pandemic and anticipate that our sales and Nielsen tracked channel results, while better than the category, will be significantly depressed during this time,” Chairman and CEO Tarang Amin said. “Our liquidity is strong and we are proactively managing spend. We remain confident in our long-term growth potential given our proposition of delivering prestige quality cosmetics and skin care at an extraordinary value.”
E.l.f. Beauty will report its fourth-quarter and full fiscal 2020 results on May 21.
GuruFocus rated e.l.f Beauty’s financial strength 5 out of 10 on the back of weak interest coverage and a low Altman Z-Score of 1.13, warning investors it could be at risk of going bankrupt and is unable to cover its debt. Its return on invested capital is also less than its weighted average cost of capital, indicating it may not be capital efficient.
The company’s profitability scored a 4 out of 10 rating. Even though its operating margin outperforms a majority of competitors, e.l.f. Beauty is weighed down by returns that underperform at least 70% of industry peers. It also has a moderate Piotroski F-Score of 7, which implies business conditions are stable.
With a 4.72% stake, Cibelli is the company’s largest guru shareholder. Other top investors are Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Lee Ainslie (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
Portfolio composition
Cibelli’s $221 million equity portfolio, which was composed of 12 stocks at the end of fourth-quarter 2019, was heavily invested in the communication services sector with a weight of 37.05%, followed by the consumer defensive space with a 35.97% weight.
After e.l.f. Beauty, the investor’s largest positions are Grubhub Inc. (GRUB, Financial), HD Supply Holdings Inc. (HDS, Financial), Facebook Inc. (FB, Financial) and PayPal Holdings Inc. (PYPL, Financial).
Disclosure: No positions.
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