Olaplex (OLPX)

Hair care company Olaplex (NASDAQ:OLPX) announced better-than-expected revenue in Q3 CY2025, but sales fell by 3.8% year on year to $114.6 million. The company expects the full year’s revenue to be around $420.5 million, close to analysts’ estimates. Its GAAP profit of $0.02 per share was $0.02 above analysts’ consensus estimates.

Company Overview

Rising to fame on TikTok because of its “bond building" hair products, Olaplex (NASDAQ:OLPX) offers products and treatments that repair the damage caused by traditional heat and chemical-based styling goods.

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 hair care segment include Kerastase and Redken, both owned by L'Oréal (ENXTPA:OR), Bumble and bumble, owned by Estée Lauder (NYSE:EL), and private company Brazilian Bond Builder (b3).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $418.6 million in revenue over the past 12 months, Olaplex 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, Olaplex’s revenue declined by 17.3% per year over the last three years, a poor baseline for our analysis.

This quarter, Olaplex’s revenue fell by 3.8% year on year to $114.6 million but beat Wall Street’s estimates by 4.2%.

Looking ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months. While this projection implies its newer products will spur better top-line performance, it is still below average for the sector.

Olaplex has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 71.3% gross margin over the last two years. That means for every $100 in revenue, only $28.75 went towards paying for raw materials, production of goods, transportation, and distribution.

Olaplex’s gross profit margin came in at 69.1% this quarter, down 1.7 percentage points year on year. Olaplex’s full-year margin has also been trending down over the past 12 months, decreasing by 1.1 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 an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Olaplex has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer staples business, producing an average operating margin of 11.2%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Olaplex’s operating margin decreased by 15.2 percentage points over the last year. Even though its historical margin was healthy, shareholders will want to see Olaplex become more profitable in the future.

This quarter, Olaplex generated an operating margin profit margin of 3.7%, down 19.9 percentage points year on year. Since Olaplex’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the 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.

In Q3, Olaplex reported EPS of $0.02, in line with the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Olaplex has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 28.3% over the last two years.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Olaplex’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 13.6%, slightly better than typical consumer staples business.

Olaplex reported $286.4 million of cash and $352.1 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $98.5 million of EBITDA over the last 12 months, we view Olaplex’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $20.19 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Olaplex beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its full-year revenue guidance was in line and its gross margin fell slightly short of Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 1.9% to $1.09 immediately after reporting.

Updated: December 4, 2025 at 9:52 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Olaplex’s business quality ultimately falls short of our standards. First off, its revenue has declined over the last three years. And while its admirable gross margins are a wonderful starting point for the overall profitability of the business, the downside is its cash profitability fell over the last year. On top of that, its declining operating margin shows the business has become less efficient.

Olaplex’s P/E ratio based on the next 12 months is 12.7x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $1.89 on the company (compared to the current share price of $1.18).

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.