DA Davidson downgraded e.l.f. Beauty (NYSE: ELF) from Buy to Neutral with a price target of $12.25 (from $23.00).

ANalyst Linda Bolton Weiser comments "We are lowering our rating to NEUTRAL from Buy because the e.l.f. brand is likely losing market share. Although ELF announced several new retail customers, including Rite Aid (RAD), we are concerned that POS trends could jeopardize shelf space with existing retailers. ELF plans to spend more in 2H18 to support the brand in the crowded and "noisy" competitive landscape, but provided no guidance on how much its 3% advertising ratio needs to increase over the long-term. We also think mass cosmetics could continue to be under pressure from consumer trade-up to prestige brands. We continue to believe ELF could be a take-out candidate (at a valuation of 3.5x sales, which is $1B or $18/share), but probability gets lower the longer market share loss continues."

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Shares of e.l.f. Beauty closed at $14.91 yesterday.