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Olaplex (OLPX): Among Top Retail Stocks

Sharing 2022's top retail stocks as selected by Wall Street analysts.

11 Jan

Resilient Against Inflation

The top retail stocks for 2022 are companies that specialize in luxury goods, and those that are resilient against inflation. According to analysts at Cowen, “inflation will be significant and semi-permanent” heading into 2022.

“Cowen prefers to own stocks tailored toward the high-end consumers, and stocks that provide deep value to the lower-end consumers,” wrote lead analyst Oliver Chen.

Some stocks that meet this criteria:

  • Restoration Hardware (RH)

  • Walmart (WMT)

  • Costco (COST)

  • Brilliant Earth Group (BRLT)

  • LVMH Moet Hennessy Louis Vuitton (MC)

“Restoration Hardware, Costco, Brilliant Earth, and LVMH can hold steady against inflation thanks to their pricing power and market share. RH, for example, has about a 4.5% market share of the furniture industry, and Brilliant Earth has about $61 billion of the $300 billion global fine jewelry market.”

Their top retail pick heading into the new year is Macy’s (M) — the company has faced pressure to separate their digital operation from their brick and mortar business, but Cowen says Macy’s is accelerating their digital business which could reach $10 billion in sales by 2023. That would account for about 40% of overall revenue.

Other retail giants on the watchlist include Target (TGT) and Walmart (WMT), which have successfully merged their physical store operations with their incredibly ambitious digital strategies.

Target, Walmart and Costco are also multi-category stock picks that offer services like next-day & two-day delivery, curbside pickup, and partnerships with Instacart.

Finally, Cowen stated that investors shouldn’t overlook the beauty industry as “consumers’ awareness and preference for health and wellness remain elevated.” Olaplex (OLPX) is slated to see the most revenue growth (+26%) among peers, driven primarily by “innovation, pricing, and Gen Z.”

Fast Forward: Olaplex (OLPX)

As originally shared here on TikTok, then deeply extrapolated upon here on Substack — Olaplex is a women’s beauty company that’s seen immense momentum throughout the last 2 years. Catalyzed by both incredibly products and virality on social media, Olaplex seems ripe for serious cash flow over the coming years.

To really put this virality into perspective, below is a quote from my IPO analysis on the company..

Over the last ~2 years or so, this company’s valuation has absolutely exploded —and for good reason.

Since the rise of social media, especially TikTok, it’s safe to say Olaplex is the #1 earned media value haircare brand — which means their customers advertise their products for them on socials vs. paying for ads.

This was shown by the hashtag #OLAPLEX having over 12.4 million posts on Instagram, and the #OLAPLEX having over 380 million views on TikTok.

To shed even more light on how incredible this is — that’s 2X as many views as L’Oreal, 4X as many as Lululemon, 5X as many as Estee Lauder, and 16X as many as Peloton.

The company made their highly anticipated public debut during the last week of September 2021, and the stock has been incredibly volatile ever since.

Despite the heightened volatility primarily driven by taper tantrum concerns, the underlying business has performed phenomenally well.

3Q21 Results:

  • Increased revenue by +81% to $162 million

    • Professional increased +58% to $75 million

    • Specialty Retail increased +128% to $46 million

    • Direct-to-Consumer increased +87% to $40 million

  • Gross profit outpaced revenue growth by increasing +103% to $128 million — gross profit margin expanded +8.7% to 79%

  • Profits increased +100% to $57 million

  • Free cash flow (FCF) increased +139% to $68 million

Given the above results, the company is on track to print nearly $300 million in FCF during the 2021 calendar year — or $0.47 in FCF per share. This figure increases to nearly $370 million during the 2022 calendar year, and should continue growing by +15-20% compounded annually through 2025.

With 80% gross profit margins, earned media 16X that of Peloton, and FCF per share looking to eclipse $1.15 during 2025 — there are plenty of reasons to remain excited about Olaplex.

Of my Moonshot ideas within my portfolio, Olaplex is one in which I’d be happy to continue building a position.

At $24.50 / share, Olaplex is trading at about 20X forward revenue — which is absolutely deserved given their 80% gross profit margins, profitability, and positive FCF.

If Olaplex is able to continue growing their FCF by this +15-20% figure (compounded annually) through 2026 (5 calendar years), their FCF per share should hover around the $1.40 range. With our 35X FCF per share multiple applied, we can infer their stock will be fairly valued around $50 / share. 

This would represent +16% returns compounded annually through 2026.

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

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