Olaplex Holdings (NASDAQ:OLPX) inventory exhibits many encouraging indicators following its late September IPO. Investors could also be shy to provoke a place OLPX inventory given there isn’t any analyst protection of the fairness. But from my perspective, there are some early indicators indicating that this inventory has potential.
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The concept of a so-called “sturdy IPO” is basically a subjective evaluation. Oftentimes markets equate a sharp worth improve at IPO with a sturdy IPO. But such equities can usually drop shortly thereafter and show risky for the quarters that observe.
So primarily, by that commonplace, a sturdy IPO is one in which early buyers see fast worth appreciation, shortly cashing out and making a good-looking return in the method.
I are likely to disagree with that definition of IPO success. In my opinion, the IPO that Olaplex has had is extra fortuitous for extra stakeholders.
In its quick life as a publicly traded entity, OLPX inventory has confirmed to be comparatively secure. It has traded in a vary between $23 and $26. It’s true: there aren’t many information factors from which to make such inferences. But alternatively, what we don’t see is a scenario in which privileged IPO buyers money out and the inventory burns. That’s why I imagine the hair care merchandise producer and retailer advantages extra stakeholders than different “sturdy” IPOs.
And one other sign that signifies Olaplex’s power occurred previous to the IPO itself.
Olaplex’s Upsized IPO Worked
When a firm going public upsizes its IPO, it indicators a few issues. First, the corporate believes that demand for its fairness has elevated—or a minimum of it’s attempting to sign to the market that it’s extra enticing than earlier IPO worth estimates. Second, it indicators better threat to buyers as increased costs mathematically equate to an elevated market capitalization. The threat is that you just purchase in at increased costs, the corporate will increase its IPO proceeds, after which it tanks post-IPO.
Here’s what’s good about Olaplex: It elevated its IPO pricing however hasn’t dipped beneath these costs after changing into publicly listed.
Win-Win for OLPX Stock
Here’s what occurred in accordance with the Wall Street Journal:
“Olaplex ended up boosting the scale of its deal, which bought above its anticipated vary, by 10%. The Santa Barbara, Calif., firm had initially deliberate to supply 67 million shares priced from $14 to $16 every. On Tuesday, Olaplex raised that vary to $17 to $19. The IPO collected $1.55 billion after promoting 73.7 million shares at $21 every, above an already sweetened vary.”
It was a win-win scenario. The firm boosted its IPO proceeds and buyers who jumped in at $21 have a priceless asset with upside.
That’s a sturdy worth sign for OLPX inventory provided that it at the moment has no analyst protection. Potential buyers don’t should look to Wall Street for indicators that shares received’t tank as a result of the market’s pricing is indicating as a lot.
Strong Position in Burgeoning Niche
Olaplex produces hair care merchandise. Cosmetics in common are famous for his or her excessive margins, and hair care merchandise aren’t any totally different. In truth, in 2020, Olaplex posted gross margins of 82% and EBITDA margins of 72%.
The firm is the #1 haircare model at Sephora, the #1 bond constructing model in skilled haircare, and it boasts the #1 follower depend on Instagram. Those sorts of accolades, although not vital from a monetary fundamentals perspective, are vital.
What is vital from a monetary fundamentals perspective is that the corporate reported 90% gross sales progress from 2019 to 2020. Such sturdy outcomes actually emboldened the corporate to go forward with its IPO in 2021.
And as Olaplex famous in its IPO prospectus:
“Haircare represents a giant, addressable market and presents vital alternatives for progress. In 2020, the market was sized at $77 billion globally and is anticipated to develop at a compound annual price of ~6% from 2020 to 2025. OLAPLEX participates in the status section of the market, which is anticipated to be the quickest rising section of the worldwide haircare market from 2020 to 2025.”
Takeaway on OLPX Stock
All of the knowledge above suggests OLPX is secure as a inventory, and will develop going ahead.
On the date of publication, Alex Sirois didn’t have (both instantly or not directly) any positions in the securities talked about in this text. The opinions expressed in this text are these of the author, topic to the InvestorPlace.com Publishing Guidelines.