Abercrombie & Fitch Co. (NYSE:ANF) and e.l.f. Beauty, Inc. (NYSE:ELF) are both targeting younger consumers, but investors are valuing their growth stories very differently. Abercrombie trades at just 10.02x forward earnings, while e.l.f. trades at 35.21x. At first glance, that makes Abercrombie look like the obvious bargain.
I don’t think it is that simple.
Abercrombie has spent several years rebuilding its brands and is now producing the kind of profitability that investors once thought was unlikely. e.l.f., meanwhile, is still growing much faster and has added new brands, categories and international markets. The real question is whether e.l.f.’s growth deserves a premium of this size.
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Abercrombie has become a very different company
Abercrombie & Fitch Co.’s turnaround is no longer just a story about a brand coming back into fashion.
The company delivered its 15th consecutive quarter of sales growth in the second quarter. Revenue rose 5% to a record $1.27 billion, while the Abercrombie brand itself grew 8% and comparable sales increased 4%. Hollister was slower, with sales up 2%, but management said the brand was accelerating as it entered the back-to-school season.
There are also signs that Abercrombie is becoming less dependent on simply selling more clothes through its own stores.
Hollister’s partnership with Target now puts its products in more than 1,500 locations, giving the brand access to customers it might not otherwise reach. The company is also expanding footwear and accessories and pushing its NFL partnership through NFL stores, NFLShop.com, and other channels.
That is important because the next stage of Abercrombie’s growth probably has to come from doing more with the brands it has already rebuilt.
Fashion is still fashion, though. A strong product cycle can last for years, but customer preferences can change quickly. Hollister’s comparable sales were still down 3% in the latest quarter, while EMEA comparable sales declined 4%.
The other issue is that the latest earnings benefited from a $100 million tariff refund, which added about $1.75 to quarterly EPS. The underlying business still beat expectations even without that benefit, but investors should not treat the $4.17 quarterly EPS as a normal run rate.
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e.l.f. has the better growth engine
e.l.f. Beauty, Inc. is a different story.
The company grew sales 36% in its latest quarter and raised its full-year revenue growth forecast to 18%-20%. That number is helped substantially by Rhode, which was acquired last year, but even organic growth is expected to reach 6%-7% for fiscal 2027, with 10%-12% organic growth expected in the second half.
More importantly, e.l.f. is proving that it can build brands rather than rely on one product.
e.l.f. Cosmetics remains its core business, but e.l.f. Skin has already become the No. 11 mass skincare brand in the United States. Naturium is expanding internationally, and Rhode is being rolled out across Europe. The company has also entered haircare, with e.l.f. Hair products priced at $10 or less.
That creates something Abercrombie doesn’t quite have: multiple ways to grow without needing the same brand to remain fashionable forever.
Rhode is particularly important. It contributed about $160 million of sales in the latest quarter, and e.l.f. expects it to contribute roughly 13 percentage points of total revenue growth in fiscal 2027.
Still, this is where the 35.21x multiple needs some context.
e.l.f.’s reported earnings are being affected by the accounting and investment burden associated with its expansion and the Rhode acquisition. Looking at the company’s adjusted numbers gives a better picture of the underlying earnings power. Management expects $3.50-$3.55 in adjusted EPS and $401-$407 million in adjusted EBITDA this year.
So while it would be hasty to dismiss e.l.f. simply because its headline P/E looks expensive, investors also shouldn’t ignore the premium.
Which stock makes more sense?
Abercrombie is much cheaper and has already demonstrated that its turnaround can produce strong margins and cash flow. Management expects at least $500 million of share repurchases this year, which is significant for a company of its size.
e.l.f. has the stronger growth story, broader category exposure, and arguably more room to expand internationally. But investors are already paying for a lot of that growth.
For me, Abercrombie is the more interesting value play, while e.l.f. is the better growth business. At 10.02x forward earnings, ANF does not need everything to go right. e.l.f., at 35.21x, needs its newer brands, particularly Rhode, to keep delivering while the core business reaccelerates.
That makes Abercrombie the better buy at current valuations, even though I would rather own e.l.f.’s underlying growth model.
Market Sentiment
According to Insider Monkey’s database, 32 hedge funds held e.l.f. Beauty in Q2, down from 39 in Q1, while the value of those positions increased from about $243.2 million to $354.6 million. Abercrombie saw hedge fund ownership decline to 36 funds from 39, with the value of those positions falling from $766.6 million to $609.9 million.
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This article is originally published at Insider Monkey.
