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Analysts are bullish about Olaplex Holdings Inc., a newly public company that’s taking haircare to premium levels.
Truist Securities calls Olaplex
OLPX,
a “health and beauty unicorn” that “appears to be at the infant stages of its growth opportunity” in its initiation note.
“We believe its unicorn characteristics along with the higher barriers to entry created by the company’s 100+ patent portfolio, justify a premium valuation to its high growth consumer peers and to the peer-unicorn stocks,” Truist said.
Analysts estimate that the global haircare market is worth $77 billion. Many consumers are looking for products to reverse the effects of styling. The company says that about 91% of U.S. women do something every day to damage their hair, like chemical treatments, heat styling and coloring.
Olaplex’s eponymous product line, which consists of shampoos, conditioners, oils and other treatments, are created with “bond-building technology” intended to correct this problem.
“As consumers increasingly blow dry, color, straighten, curl, and even comb/brush their hair, they tend to damage their hair,” Truist writes.
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Moreover, analysts note that the company has built a viral marketing machine on social media through key influencers: beauticians and stylists.
Truist rates Olaplex stock a buy with a $35 price target, that’s 25% above its current price.
Olaplex Chief Executive JuE Wong says that customers have treated haircare as part of self-care during the pandemic, showing a willingness to pay a premium for products.
“People will pay a little more for the results they want,” Wong told MarketWatch soon after shares began trading on Sept. 30.
The company had the largest launch in its history this year with No. 8, which generated $7 million in sales at Olaplex’s largest accounts within the first three weeks.
Olaplex was founded in 2014, and sells items through hair stylists and salons, direct-to-consumer and through retail channels, particularly Sephora where the company says it is a top haircare seller.
One of the risks the company identifies is that it relies “on a limited number of customers for a large portion of our net sales,” and the loss of one of those customers could be significant.
Olaplex is also dependent on a single or limited number of suppliers and manufacturers, which is also a risk.
“At a high level, we believe Olaplex’s proprietary, patented-protected technology has enabled the company to successfully carve out a niche for itself in the broader hair care category (principally, treating and repairing hair at a molecular level),” wrote JPMorgan analysts in its initiation note.
What’s more, as its product line is being increasingly embraced by the professional hairstylist community, the company’s medium-term target of 25%+ revenue growth is “achievable (and beatable),” analysts wrote, especially given the opportunities to grow brand awareness, distribution, and enter new geographic markets.
JPMorgan rates Olaplex stock at overweight with a $32 price target.
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Olaplex says that sales are typically higher later in the year, when customers are purchasing for special events, including holiday parties.
Olaplex had net income of $39.3 million in 2020, down from $60.9 million in 2019. Sales in 2020 were $282.3 million, up from $148.2 million in 2019. For the first six months of 2021, net income totaled $94.9 million and sales were $270.2 million.
Specialty retail represented 18% of total 2020 net sales, and direct-to-consumer totaled 27%.
Olaplex is an emerging growth company, which means it does not have to make the same disclosures required of bigger public companies. A business remains an emerging growth company until it reaches a number of milestones, including annual revenue of more than $1.07 billion.
As of June 30, 2021, Olaplex’s debt on its term loan facility was $766.8 million, which, combined with other expenses, could be a risk.
Once the offering was complete, funds affiliated with Advent International Corp. became the owners of nearly 80% of the company’s outstanding common stock, making Olaplex a controlled company.
Olaplex did not receive proceeds from the public offering and doesn’t expect to offer a dividend anytime soon.
JuE Wong has been CEO of Olaplex since Jan. 8, 2020. prior to joining Olaplex, she has held executive positions at other beauty companies including CEO of Moroccanoil Inc. and president of Elizabeth Arden.
Eric Tiziani has been chief financial officer since June 2021. Tiziani was previously a finance leader at Unilever for more than 21 years.
“We believe Olaplex is one of the best-in-class consumer ideas as it uniquely combines the qualities of a consumer staples company and a high-growth retail disruptor with a robust financial profile,” wrote Cowen analysts in their initiation note.
Analysts conducted their own survey among 78 hairstylists and found “high enthusiasm” for the brand.
Cowen rates Olaplex stock at outperform with a $33 price target.
“Its large, under-penetrated addressable market, high customer loyalty, premium prices and sustainably low cost structure make the model uniquely compelling,” wrote Raymond James analysts.
Olaplex’s price points “leave room for lower-priced alternatives to come in, and several companies have substantially larger salon-focused hair care businesses (e.g. L’Oréal, Wella). However, we think customers are more willing to stay loyal and
pay a premium to products that effectively fix a problem,” they wrote.
Raymond James rates Olaplex stock a strong buy with a $37 price target.
Olaplex stock starts the week at $27.91 after its IPO priced at $21 and the stock jumped 22% in its trading debut in October.
The Renaissance IPO ETF
IPO,
has gained 6.3% for the year to date while the S&P 500 index
SPX,
is up 22.6% for the period.
