The Adore Beauty Group Ltd (ASX: ABY) share price is surging today, up 22.22% to $1.54.
The broader market is also on the rebound, with the S&P/ASX All Ordinaries Index (ASX: XAO) up 1.5% after a shocker of a session yesterday.
Is the Adore Beauty share price just playing catch-up?
There's been no news out of the online beauty retailer today. So, this mammoth gain may just be a case of catch-up following yesterday's carnage.
ASX shares were hammered yesterday. Investors around the world reacted with fear after higher than expected inflation numbers were released in the US. The All Ords lost 1.84% yesterday while the Adore Beauty share price shed 13.5%. So today, perhaps investors are seeing an opportunity to buy the dip.
Inflation is the key reason behind rising interest rates around the world. The Australian Reserve Bank raised the official cash rate for the first time since November 2020 earlier this month.
Rising interest rates mean people with mortgages are going to have less disposable income to spend. This is causing a bit of a rotation out of consumer discretionary shares like Adore Beauty. The S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) is down 2.6% over the past month and down 20% over the past six months.
Market volatility provides opportunity
When markets are volatile, Motley Fool Australia's Chief Investment Officer Scott Phillips says long-term investors need to grit their teeth and ride it out.
But big fluctuations in ASX share prices can also present buying opportunities. This is particularly so for investors interested in growth shares and micro and small caps with growing revenue, like Adore Beauty.
On 28 April, the online cosmetics retailer released its latest business update for Q3 FY22. It revealed a revenue gain of 9% on the prior corresponding period (pcp) to $42.7 million. Loyalty members contributed more than 60% of total revenue. Its compound annual growth rate (CAGR) is now 26%.
Active customer numbers increased 7% to 880,000 and returning customers increased 47% compared to the pcp. Plus, the company intends to launch a private label brand in the final quarter of FY22.
Broker's vote of confidence
Broker UBS likes Adore Beauty's continued operational growth and its prospects for future revenue growth. The broker says Adore Beauty shares are a buy with a 12-month price target of $4.70. That's a whopping potential upside of more than 200%.
Adore Beauty share price snapshot
The company's shares are down 63% this year to date and down 54% over the past 12 months.
Adore Beauty has a market capitalisation of $118 million with 91.4 million shares on issue.
