Rhode Acquisition Raises the Stakes for e.l.f. Beauty Stock (ELF)

E.l.f. Beauty’s (ELF) $1 billion acquisition of Rhode signals a bold push to reshape the beauty landscape. Announced on May 28, the move appears to have resonated with investors, as evidenced by the stock’s positive reaction.

The deal is set to amplify e.l.f.’s impressive revenue growth and strengthen its competitive position. Still, challenges remain. Preserving Rhode’s high-end brand identity while expanding its direct-to-consumer roots into wider retail distribution won’t be easy.

Add to that e.l.f.’s premium valuation—especially after its recent run—and the stock starts to look priced for perfection. With upside and execution risk in delicate balance, I’m taking a neutral stance on ELF for now.

E.l.f.’s Unstoppable Growth Engine

E.l.f.’s appeal to younger demographics is undeniable. This is accelerating its growth and market share within a fragmented and highly competitive beauty industry. E.l.f.’s last quarter represented its 25th consecutive quarter of both net sales growth and market share gains. In the full fiscal year ended March 31, 2025, ELF generated $1.3 billion in net sales, representing a 28% year-over-year increase. Adjusted EBITDA soared 26% year-over-year to reach $296.8 million.

For those who aren’t aware, e.l.f.’s portfolio includes a variety of beauty products, like eye, lip, and face makeup, beauty accessories, and skincare products. Despite being the #1 brand by unit share, ELF is still experiencing robust growth in this $100 billion market, with a projected 2.9% CAGR. 

Rhode Represents a Strategic Gen Z Gem

Rhode, founded by Hailey Bieber just three years ago, has quickly made a name for itself in the beauty world. Over the past 12 months, the brand pulled in $212 million in net sales, operating primarily through a direct-to-consumer model. Compared to e.l.f. Products, Rhode skews more upscale, with higher price points and a strong foothold in the skincare category—a space e.l.f. has been expanding into, most notably with its 2023 acquisition of Naturium.

Rhode’s powerful Gen Z appeal, fueled by celebrity backing, savvy social media presence, and an air of exclusivity, is a major strategic asset. The acquisition also aligns with e.l.f.’s push to diversify manufacturing away from China, as Rhode’s products are made in Italy and South Korea. Meanwhile, e.l.f. plans to implement a $1 price increase across its product lineup, potentially offsetting some of the acquisition costs.

It’s also worth noting that while the total deal value is listed at $1 billion, up to $200 million of that is contingent on Rhode hitting performance targets, giving e.l.f. a cushion if the brand loses momentum post-acquisition.

Navigating the Risks: Integration & Leverage

That said, the deal does come with notable risks. With only around $100 million in cash on hand, ELF relied on $600 million in fully committed debt financing to help fund the acquisition, significantly increasing its leverage. This added debt heightens the company’s financial risk, especially if integration challenges arise or if Rhode’s performance falls short of expectations.

On the flip side, the size of the acquisition appears manageable for ELF given its scale and growth trajectory.

It’s also important to recognize that Rhode’s success is closely tied to its founder-led identity and luxury positioning. To preserve that brand equity, Rhode will continue operating as a standalone label, with Hailey Bieber staying on as Chief Creative Officer—a move aimed at maintaining its unique appeal and loyal following.

Bear in mind that with most acquisitions, it will likely take years to fully assess how well Rhode integrates within the ELF ecosystem. In the meantime, any execution slip-ups could trigger sharp volatility in ELF stock, especially given its lofty P/E ratio of 58.6, which reflects extremely high growth expectations.

Is e.l.f Beauty a Good Stock?

On Wall Street, ELF has a Strong Buy consensus rating based on 13 Buy, three Hold, and zero Sell ratings in the past three months. ELF’s average price target of $112.20 implies a downside potential of ~2% in the next twelve months. However, analysts are just beginning to revise ELF’s price target upwards after the Rhode acquisition and its most recent financial report.

See more ELF analyst ratings

William Blair analyst Jon Andersen has a Buy rating on ELF with a price target of $81. Jon noted that the Rhode acquisition is “expected to enhance e.l.f. Beauty’s sales growth, margins, and earnings. Additionally, e.l.f. Beauty is positioned to expand its market share in the global beauty industry, with potential to reach $3 billion in retail sales by 2030.”

A Neutral Stance Amid Opportunity

ELF’s acquisition of Rhode appears to be a smart strategic move. It aligns well with the brand’s core Gen Z audience, offers immediate revenue growth, and strengthens its position in a fragmented, highly competitive beauty landscape. That said, the deal isn’t without risks. Rhode’s past success doesn’t guarantee a seamless transition under ELF’s ownership, and the stock’s elevated valuation leaves little margin for missteps.

Overall, while the acquisition holds long-term potential, much of the upside appears to be priced in. For now, ELF seems to be a cautious hold for risk-tolerant investors seeking to add some glamour to their portfolios.