What Happened?

A number of stocks fell in the afternoon session after markets pulled back amid hotter-than-expected inflation data. The main concern for investors was the July Producer Price Index (PPI), a measure of wholesale inflation. The higher-than-expected reading suggests that companies could face squeezed profit margins due to rising costs. This also reduces the likelihood of the Federal Reserve cutting interest rates, which could further dampen economic activity. Compounding these inflation fears are multiple reports signaling a weakening consumer.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Perishable Food company Freshpet (NASDAQ: FRPT) fell 3%. Is now the time to buy Freshpet? Access our full analysis report here, it’s free.
• Shelf-Stable Food company TreeHouse Foods (NYSE: THS) fell 3.1%. Is now the time to buy TreeHouse Foods? Access our full analysis report here, it’s free.
• Perishable Food company Vital Farms (NASDAQ: VITL) fell 3.2%. Is now the time to buy Vital Farms? Access our full analysis report here, it’s free.
• Personal Care company Coty (NYSE: COTY) fell 3.2%. Is now the time to buy Coty? Access our full analysis report here, it’s free.
• Personal Care company e.l.f. Beauty (NYSE: ELF) fell 3.4%. Is now the time to buy e.l.f. Beauty? Access our full analysis report here, it’s free.

Zooming In On e.l.f. Beauty (ELF)

e.l.f. Beauty’s shares are extremely volatile and have had 50 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 1 day ago when the stock gained 5.4% on the news that markets continued to rally as a surprisingly subdued inflation report fueled hopes for an imminent interest rate cut from the U.S. Federal Reserve. The July Consumer Price Index (CPI) report showed a year-over-year increase of 2.7%, which was slightly below market expectations. This tamer-than-expected inflation data was viewed by investors as a key signal that price pressures are easing. As a result, the market has strengthened its conviction that the U.S. Federal Reserve will implement an interest rate cut in September. The prospect of lower borrowing costs tends to boost corporate profitability and can stimulate economic activity, creating a more favorable environment for consumer-facing companies and fueling a broad-based market rally.

e.l.f. Beauty is down 2.4% since the beginning of the year, and at $120 per share, it is trading 29.8% below its 52-week high of $170.95 from August 2024. Investors who bought $1,000 worth of e.l.f. Beauty’s shares 5 years ago would now be looking at an investment worth $5,946.

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