On Wednesday, Raymond James raised its rating on Revolve Group (NYSE:RVLV) to Outperform from Market Perform, setting a price target at $21.00. The upgrade reflects a growing confidence in the company's performance following its fourth-quarter results. Although Revolve's revenue saw a slight year-over-year decline in the fourth quarter, and first-quarter-to-date (1QTD) sales are trending mid-single-digit percentage lower than the same period last year, the analyst noted several positive indicators.
The company's full-price sales have increased year-over-year for the first quarter to date, despite the overall decline which is attributed to fewer promotional sales. Additionally, gross margin percentage (GM%) is expected to continue expanding after five consecutive quarters of contraction. The firm also anticipates better control over Selling & Distribution expenses, which should lead to leverage after three years of pressure.
Looking ahead, the analyst predicts EBITDA margin percentage should expand in approximately 2024, with potential for upside. The long-term target for EBITDA margin percentage is in the low double digits, suggesting significant room for long-term improvement. The analyst's confidence is bolstered by the strong momentum in underpenetrated categories and the potential of international markets as a long-term growth driver.
Furthermore, FWRD, which accounts for 15% of Revolve's revenue, is expected to show sequential improvement, especially in the second half of 2024. This outlook, combined with the company's self-help initiatives aimed at enhancing profitability, presents a more attractive risk/reward scenario for Revolve Group, especially after a challenging 2023.
InvestingPro Insights
Revolve Group's (NYSE:RVLV) latest financial metrics and analyst sentiments provide a nuanced view of the company's current standing and future prospects. As per InvestingPro data, the market capitalization of Revolve stands at a robust $1.45 billion, indicating a significant presence in the market. Despite the slight dip in revenue year-over-year, the company's gross profit margin remains strong at 51.72% for the last twelve months as of Q3 2023. This underlines the company's efficiency in managing its cost of goods sold and maintaining profitability.
However, with a P/E ratio of 52.85 and an adjusted P/E ratio for the last twelve months as of Q3 2023 at 36.07, Revolve is trading at a high earnings multiple, which could signal that the stock is priced optimistically relative to earnings. This is echoed in one of the InvestingPro Tips which highlights that the stock is trading at a high EBITDA valuation multiple. Investors should consider if the company’s growth prospects justify these multiples.
On the brighter side, another InvestingPro Tip points out that Revolve holds more cash than debt on its balance sheet, indicating a strong liquidity position that could provide resilience against market volatility and enable strategic investments. Additionally, analysts predict the company will be profitable this year, and it has been profitable over the last twelve months, suggesting a stable financial foundation.
For investors seeking a more in-depth analysis, there are 12 additional InvestingPro Tips available for Revolve Group. These insights could be particularly valuable in assessing the company's potential and making informed investment decisions. To benefit from these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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