Revolve’s stock price has taken a beating over the past six months, shedding 29.6% of its value and falling to $21.98 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Revolve, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Revolve Will Underperform?
Even though the stock has become cheaper, we're cautious about Revolve. Here are three reasons why there are better opportunities than RVLV and a stock we'd rather own.
1. Change in Active Customers Points to Soft Demand
As an online retailer, Revolve generates revenue growth by expanding its number of users and the average order size in dollars.
Over the last two years, Revolve’s active customers , a key performance metric for the company, increased by 7.4% annually to 2.7 million in the latest quarter. This growth rate is slightly below average for a consumer internet business. If Revolve wants to reach the next level, it likely needs to enhance the appeal of its current offerings or innovate with new products.
2. Customer Spending Decreases, Engagement Falling?
Average revenue per buyer (ARPB) is a critical metric to track because it measures how much customers spend per order.
Revolve’s ARPB fell over the last two years, averaging 4% annual declines. This isn’t great when combined with its weaker active customers performance. If Revolve tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether buyer growth would be sustainable.
3. EPS Trending Down
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Revolve, its EPS declined by 18.5% annually over the last three years while its revenue grew by 5.1%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Revolve falls short of our quality standards. Following the recent decline, the stock trades at 20.4× forward EV/EBITDA (or $21.98 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.
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