It has not been a debut to remember for Revolution Beauty (LSE: REVB), which started trading on AIM earlier today. The company’s price at the initial public offering was set at 160p, but has fallen 6% since to 155p.
That does not mean that it will stay there. Similarly, a strong stock market debut does not ensure continued share price increases. But to get a sense of which way the tide may turn, I looked for answers to three questions.
#1. What is Revolution Beauty’s unique selling point (USP)?
Revolution Beauty is a mass market cosmetics producer, but to me its USP is its branding as ‘cruelty free’. This means that there is no animal testing for its products. Further, they are also vegan and often use sustainable packaging. All of this can be a positive in a time of growing emphasis on ethical investing.
The company was founded only in 2014 and has the vibe of a present day beauty company. It relies on social media influencers for its marketing and heavily encourages inclusion. It has both online and offline partnerships with leading brands. Brick-and-mortar retail partners in the UK include Boots and Superdrug. And for online sales, it has tied up with the likes of Amazon and ASOS.
#2. How do its financials and its outlook appear?
These partnerships appear to have been the right move for the company. Since its launch, its revenues have almost doubled every year up to 2019. Further, it has also reported underlying profits, though whether this will translate into reported earnings is unknown.
#3. What is the outlook for Revolution Beauty’s shares?
I think this bodes well for the company, which to my mind is not valued at unsustainable levels. For want of more clarity on earnings, I looked at its price-to-sales (P/S) figures, which are around 3.2 times based on my calculations. This compares well with another cosmetics company, Warpaint London, which has the same P/S as per Financial Times numbers.
This means that there is room for the company’s share price to rise. Further, keeping in mind that in the foreseeable future, consumer spending is expected to rise as the economy starts growing (relatively) fast, it could encourage further growth in Revolution Beauty’s business.
Would I buy these shares?
However, for now, I am not going to rush in to buy its shares. I am interested in waiting for at least one update from the company to get a better understanding of where it is at.
Specifically, I want a clearer picture of its bottom line. If it is unprofitable on a net basis, it would be good to know why. High growth companies have a tendency to focus on market share instead of profits, but I do not know if that is the case with this company. And I certainly do not want to fill in any blanks based on my own conjecture. I will wait for now.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended ASOS and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.