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Cricut Stock: the Worst Seems to be Over
Stock Analysis & Ideas

Cricut Stock: the Worst Seems to be Over

Cricut, Inc. (CRCT) stock has witnessed significant volatility since listing in March 2021. After opening at $19.24, CRCT stock surged to a high of $47.36 on June 30. A sharp correction followed, and the stock currently trades below $30.

It seems that current levels are attractive for accumulation, with a medium-to-long-term investment horizon. I am bullish on the stock going forward. (See CRCT stock charts on TipRanks)

It’s important to understand the reason for the sharp correction. For Q1 2021, Cricut reported revenue growth of 125.3% on a year-over-year basis to $323.8 million. For the same period, EBITDA increased by 231% to $68.6 million.

However, for Q2 2021, the company’s revenue increased by “only” 42% year-over-year to $334.5 million. Furthermore, EBITDA increased by 39.2% to $68.5 million. Clearly, there has been a deceleration in growth.

It seems, however, that the correction is overdone. There are several positive catalysts that can result in a renewed rally for the stock.

Positive Growth Catalysts for Cricut

An important point to note is that Cricut has an asset-light business model. It’s relatively easy to pursue global growth with its current financial flexibility.

Cricut believes that its total addressable market globally is 402 million users. As of Q2 2021, the company reported total users of 5.4 million and paid subscribers of 1.8 million. Even if the company can attract 10% of its TAM, the growth potential is significant.

It’s worth noting that in Q1 2021, Cricut reported 253% growth in international revenue year-over-year. For the most recent quarter, international revenue growth was 179.5%.

Sustained growth in international markets is likely to ensure that Cricut makes steady progress as a business. For Q2 2021, Cricut reported subscription revenues of $50.7 million, a 110.9% increase year-over-year. As the subscriber base expands, the company is positioned to report healthy EBITDA margin expansion.

Cricut also has a robust liquidity buffer. As of June 30, the company held cash and equivalents of $314 million, and an untapped $150-million credit line.

The company is currently investing significantly in research and development. Additionally, sales and marketing expenses are high. Once the user base swells, word-of-mouth should drive subscription growth.

Wall Street’s Take

According to TipRanks’ analyst consensus rating, CRCT stock comes in as a Hold, with one Buy, two Hold and one Sell ratings assigned in the past three months.

The average Cricut price target is $32 per share, implying 12.3% upside potential from current levels.

Concluding Views

Cricut has a unique business that allows users to create quality handmade goods. A rise in Delta variant cases of COVID-19 could ensure that user growth remains healthy in the coming quarters, given Cricut’s role as a source of at-home entertainment.

Considering the asset-light business model, CRCT stock seems attractive after its meaningful correction.

Disclosure: On the date of publication, Faisal Humayun had no position in any of the companies discussed in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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