The Honest Company (HNST)

Personal care company The Honest Company (NASDAQ:HNST) met Wall Street’s revenue expectations in Q4 CY2025, but sales fell by 11.8% year on year to $88.04 million. Its GAAP loss of $0.21 per share was significantly below analysts’ consensus estimates.

Company Overview

Co-founded by actress Jessica Alba, The Honest Company (NASDAQ:HNST) sells diapers and wipes, skin care products, and household cleaning products.

While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.

Competitors in the personal care products market that are increasingly their focus on natural and eco-friendly products include Procter & Gamble (NYSE:PG), Kimberly-Clark (NYSE:KMB), and private companies such as Seventh Generation and Babyganics .

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $371.3 million in revenue over the past 12 months, The Honest Company is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.

As you can see below, The Honest Company’s sales grew at a mediocre 5.8% compounded annual growth rate over the last three years. This shows it couldn’t generate demand in any major way and is a tough starting point for our analysis.

This quarter, The Honest Company reported a rather uninspiring 11.8% year-on-year revenue decline to $88.04 million of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to decline by 7.3% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and suggests its products will face some demand challenges.

The Honest Company’s unit economics are higher than the typical consumer staples company, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 35.8% gross margin over the last two years. Said differently, The Honest Company paid its suppliers $64.20 for every $100 in revenue.

The Honest Company’s gross profit margin came in at 15.7% this quarter, down 23.1 percentage points year on year. The Honest Company’s full-year margin has also been trending down over the past 12 months, decreasing by 4.9 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is a key profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

Unprofitable public companies are rare in the defensive consumer staples industry. Unfortunately, The Honest Company was one of them over the last two years as its high expenses contributed to an average operating margin of negative 3.3%.

Analyzing the trend in its profitability, The Honest Company’s operating margin decreased by 3.3 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. The Honest Company’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q4, The Honest Company generated a negative 27.5% operating margin. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although The Honest Company’s full-year earnings are still negative, it reduced its losses and improved its EPS by 35.8% annually over the last three years. The next few quarters will be critical for assessing its long-term profitability.

In Q4, The Honest Company reported EPS of negative $0.21, down from negative $0.01 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast The Honest Company’s full-year EPS of negative $0.14 will flip to positive $0.18.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

The Honest Company has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2%, subpar for a consumer staples business.

Taking a step back, an encouraging sign is that The Honest Company’s margin expanded by 3.4 percentage points over the last year. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

The Honest Company’s free cash flow clocked in at $18.06 million in Q4, equivalent to a 20.5% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

The Honest Company’s five-year average ROIC was negative 29.5%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer staples sector.

Companies with more cash than debt have lower bankruptcy risk.

The Honest Company is a well-capitalized company with $89.58 million of cash and $4.92 million of debt on its balance sheet. This $84.66 million net cash position is 33.5% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see The Honest Company’s full-year EBITDA guidance beat analysts’ expectations. On the other hand, its gross margin missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 5.1% to $2.20 immediately following the results.

Updated: February 25, 2026 at 10:16 PM EST

When considering an investment in The Honest Company, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We see the value of companies helping consumers, but in the case of The Honest Company, we’re out. For starters, its revenue growth was a little slower over the last three years, and analysts expect its demand to deteriorate over the next 12 months. While its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its brand caters to a niche market. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

The Honest Company’s P/E ratio based on the next 12 months is 15.1x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $3.87 on the company (compared to the current share price of $2.18).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.