ELF Beauty's transition from Russell 2000 to Russell 1000: Piper analysts weigh in

Investing.com - On June 28th, ELF Beauty Inc (NYSE:ELF) is set to transition from the Russell 2000 to the Russell 1000 as part of the Russell US Index Reconstitution, a shift which could bring about a significant liquidity event for the company, according to analysts at Piper.

Although some pre-positioning, including incremental selling and shorting, has been occurring over the past several months, any negative movement is expected to be minimal and short-lived.

Piper analysts estimate that there will be approximately 4.8 million net shares of ELF Beauty for sale, valued at around $900 million, at the close of June 28th. Shares have been shorted leading up to the reconstitution date as funds prepare to unwind their positions on the rebalance effective date.

Previous trends show that short interest for ELF Beauty has been increasing over the past few months compared to early 2024. However, the analysts suspect that the incremental shares shorted might not be enough to meet the 4.8 million shares for sale from the rebalance.

While Piper analysts expect short interest to continue trending higher in June, they do not have full confidence that the 4.8 million will be met entirely. As such, they advise investors to be cautious of potential stock weakness, but they also believe that pre-positioning is likely to minimize that weakness.

Despite potential volatility, Piper analysts remain optimistic about ELF Beauty, considering it their top idea. They believe that even if there is some short-term movement, the stock will bounce back in the coming months as it reverts to trading on its strong fundamentals.

Piper retained their Overweight rating with a price target of $210.