Cosmetics maker The Honest Company (HNST) has quite a bit going for it. It’s recently received some accolades for its leadership, and it also turned in a quarterly earnings report that offered some very welcome numbers.
Though the numbers weren’t all positive, it’s still got quite a bit of momentum going for it. The latest trading session saw gains in premarket that kept going into the rest of the trading day, which is welcome after the decline that it’s seen recently. I, meanwhile, stand fairly bullish on The Honest Company, which looks like it’s got some life left into it and may be looking at a rally in progress. (See Insiders’ Hot Stocks on TipRanks)
Looking at The Honest Company’s stock chart for the year so far shows a company on the ropes. The company IPO’d back in May, and almost immediately started a downward run.
The stock went from $23 to around $15 in about a week’s time. A bit of a rebound arrived, and that gave hope of clearing the $20 mark once more. That hope did not last. By July, the company struggled to even break the $15 per share mark, and another leg down hit with mid-August. Ever since then, the stock has been hovering around the $10 mark. (See The Honest Company stock charts on TipRanks.)
The latest figures from the third-quarter earnings report should help those numbers out, though. While the news wasn’t all good, the good news that was there will undoubtedly prove welcome.
The company posted a loss of $0.06 per share, which is a trifle higher than the $0.04 per share loss that FactSet analysts were expecting. That’s also on par with the $0.06 per share loss that the company posted this time last year.
Revenue, however, proved a welcome surprise. The company posted revenue of $82.7 million, which came out ahead of estimates.
A Potential Comeback in the Works
So, on the surface, things don’t look good for The Honest Company. The stock charts suggest a disaster in progress. However, a closer look at some of the company’s operations suggests that there’s more going on here than meets the eye, and it might be worth investing in.
What’s going on? Well, first, the company was just named to Inc.’s 2021 Best-Led Companies List. That’s a feat in and of itself. The list singles out companies with the best management that also have revenue between $50 million and $2 billion.
The Honest Company got the nod for its achievements in several fields, including market penetration rates and overall customer engagement levels.
That’s good news, certainly, and it gets better from there. The company recently noted that it expanded its retail distribution operations, working with over 40,000 separate locations. That’s up 10% from the third quarter of 2020.
It’s also been improving its gross margins thanks to a combination of growing demand for the product line and what it calls a “costovation” strategy. That seems to be a portmanteau of “cost” and “innovation”, which suggests the company is working to improve its cost containment and realize greater profitability as a result. That’s just what most investors should want to hear.
Just to round it out, there’s also one key point that should help The Honest Company going forward. The economy is re-opening, and there seems to be very little political will behind further lockdowns. This should help improve accessibility to and use of cosmetics. That, in turn, should help stabilize The Honest Company’s market going forward and help keep earnings and revenue numbers supported.
Wall Street’s Take
Turning to Wall Street, The Honest Company has a Moderate Buy consensus rating, based on four Buys and two Holds assigned in the past three months. The average Honest Company price target of $13.75 implies 36.4% upside potential.
Analyst price targets range from a low of $11 per share to a high of $18 per share.
Concluding Views
Granted, things don’t look great for The Honest Company right now. The stock charts look like a disaster already in progress. However, some very compelling numbers suggest there’s more going on here than the sliding stock charts suggest.
I assert that the Honest Company is selling for a bargain price right now thanks to all the numbers. I’m bullish overall on this company that’s got great potential behind it, thanks to a combination of solid leadership, growing retail numbers, and a market that’s likely to be increasingly friendly to cosmetics wear going forward.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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