At one stage today, the online beauty retailer’s shares were up as much as 10% to $7.42.
The Adore Beauty share price has since dropped back from there and is currently fetching $7.00, which is up 3.7% from its IPO price of $6.75.
The Adore Beauty IPO.
This morning Adore Beauty listed on the Australian share market having raised $269.5 million at a price of $6.75 per share through its IPO.
This gave the company a market capitalisation of $635.3 million, which certainly is a far cry from its humble beginnings.
Adore Beauty was created in a garage in Melbourne 20 years ago and funded by a $12,000 loan from family.
Today, the company is expecting to generate revenue of $158.2 million in calendar year 2020, with gross profit of $50.8 million and net profit after tax of $3.5 million.
Based on the latter, the company’s shares have a forward price to earnings ratio somewhere in the range of 185x. This is a notable premium to Kogan.com Ltd (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW).
What is Adore Beauty’s business model?
Adore beauty generates its revenue through online sales of third-party beauty and personal care products to Australian and New Zealand consumers.
Over the last few years the company has attracted and retained a large and active customer base. Management notes that it has grown over 278% over the past four years to over 590,000 Active Customers today.
Pleasingly, the company still has a long growth runway. Frost & Sullivan estimates that beauty and personal care products sales in Australia (both online and offline) reached $10.9 billion in 2019.
Furthermore, the research firm estimates the online penetration rate of the beauty and personal care market in Australia is just 7.3%. This lags international markets such as the United States and the United Kingdom, with estimated online penetration levels of 15.4% and 12.7%, respectively.
Adore Beauty believes that online penetration of the beauty and personal care market in Australia will continue to increase, and that COVID-19 may accelerate the rate of online penetration going forward.
The company intends to use the proceeds of its IPO to support its growth strategy and future growth opportunities.
This includes growing its brand awareness, strengthening its offering, and expanding into new markets and adjacent categories.
Time will tell if it can live up to the high expectations that are implied by its high PE ratio.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia has recommended Kogan.com ltd and Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.