Through the COVID-19 pandemic, lockdowns and restrictions have been felt throughout a number of industries, affecting companies and customers alike. Amongst these harm, the worst are the salons, stylists, and retailers that assist private magnificence care. The closing of salons meant no appointments, and no appointments meant customers needed to do for themselves what they might have gladly paid an expert to handle prior to now.
Olaplex (NASDAQ:OLPX) is a frontrunner in skilled hair care merchandise and boasts a patented system that rebuilds hair. The corporate is properly conscious of the pandemic’s impact on the hair care product market, and with its latest preliminary public providing (IPO), it’s seeking to increase on its portfolio of merchandise for customers. For traders, it might be a possibility to get in on an organization with large development potential.
A September IPO boosts the corporate’s valuation
When Olaplex introduced its IPO in early September, the preliminary share value was anticipated to fall between $14 and $16 per share. By the point the IPO came about on Sept. 30, the corporate discovered itself with a valuation of over $15 billion, supported by a share value that opened at $21. This was a 50% soar over the decrease finish of its preliminary vary — and proceeded to climb by one other 17% all through the primary day of buying and selling. This generated $1.6 billion for its traders.
Olaplex’s president, CEO, and director is JuE Wong, who’s banking on the IPO to attract consideration to the corporate and increase its model to customers who take hair care very critically. The corporate intends to focus totally on shampoos and conditioners. In 2017, the marketplace for hair care merchandise was valued by Allied Market Analysis at $18 billion, and it’s projected to develop at an annual compound development charge of 4.6% to a glamorous $26 billion by 2026. The corporate plans to launch three or 4 new merchandise via 2024 in an try and money in on the rising market.
Its present distribution channels embrace skilled salons and direct-to-consumer gross sales, and it owns shelf area at high specialty retailers equivalent to Sephora, Blue Mercury, Area NK, and Nordstrom. However in accordance with Wong, the corporate will want higher penetration to realize extra market share. It at the moment has solely a 7% penetration at Sephora.
Opponents carry extra than simply merchandise
The rise in inventory value instantly after the IPO, mixed with predictions of constructive development within the hair care market, seems to be promising, however the firm faces a couple of challenges because it seems to be to increase its model.
First, the inventory is buying and selling at a excessive price-to-earnings (P/E) ratio of 158. By comparability, high competitor beauty corporations L’Oreal and Ulta Magnificence commerce at P/E ratios of 54 and 28, respectively, with trailing-12-months earnings per share of $1.69 and $13. Olaplex earnings are at $0.16 per share. Second, salons and retail retailer cabinets are stuffed with competing merchandise. And third, the corporate is within the midst of a patent infringement case enchantment.
This previous March a U.S. courtroom of appeals dominated in favor of L’Oreal, overturning a earlier ruling and $66 million judgment that L’Oreal had infringed on Olaplex’s patent for a much less damaging technique of bleaching hair. The lawsuit had claimed commerce secret misappropriation, breach of a nondisclosure settlement, and patent infringement in opposition to L’Oreal because of merger and acquisition discussions held between the 2 corporations. In Might, Olaplex introduced that it’s going to enchantment the brand new ruling and that it believes it is going to be profitable in proving that L’Oreal willfully infringed on Olaplex.
Constructing on momentum
Though the infringement case enchantment will probably be of curiosity to the corporate and to traders, it needs to be famous that this isn’t the primary time these two rivals have confronted off within the courtroom. Courting again to 2016, Olaplex has claimed constantly that L’Oreal infringes on its patented system, which it touts as the one true bonding system for the broken dyed hair that comes with bleaching and coloring.
All of the whereas, Olaplex has continued to develop its model and generate income development. Gross sales within the first half of 2021 climbed considerably 12 months over 12 months. As of June 2021, the corporate earned a revenue of $95 million on income of $270 million, representing a 170% improve in income over the identical interval of 2020. It additionally skilled a lack of $22 million within the first half of 2020, in comparison with the revenue within the first half of 2021.
The corporate appears to be on the suitable path to continued development in a sturdy hair healthcare market. A choice in its favor within the infringement case might present its inventory with the increase it must exceed the common analyst value goal of $34. With a powerful increase, Olaplex might attain the excessive goal of $50, which might be a 72% achieve over the present $29 share value.
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