e.l.f. Beauty, Inc. (NYSE:ELF) shareholders might be concerned after seeing the share price drop 20% in the last month. But that doesn't undermine the fantastic longer term performance (measured over five years). In that time, the share price has soared some 916% higher! So we don't think the recent decline in the share price means its story is a sad one. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. We love happy stories like this one. The company should be really proud of that performance!

Since the long term performance has been good but there's been a recent pullback of 18%, let's check if the fundamentals match the share price.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last half decade, e.l.f. Beauty became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the e.l.f. Beauty share price is up 558% in the last three years. Meanwhile, EPS is up 162% per year. This EPS growth is higher than the 87% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. Having said that, the market is still optimistic, given the P/E ratio of 75.50.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that e.l.f. Beauty has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on e.l.f. Beauty's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

We're pleased to report that e.l.f. Beauty shareholders have received a total shareholder return of 50% over one year. Having said that, the five-year TSR of 59% a year, is even better. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 2 warning signs we've spotted with e.l.f. Beauty .

But note: e.l.f. Beauty may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com