What Happened:
Shares of personal care company The Honest Company (NASDAQ:HNST) jumped 24.5% in the morning session after the company reported a "beat and raise quarter." The Honest Company blew past analysts' gross margin expectations this quarter, and its revenue outperformed Wall Street's estimates. Notably, the top line outperfomance was powered by strong demand for its baby products and wipes portfolios. Given the solid results, management expects full year revenue growth guidance to be in the mid to high single-digit percentage range (vs previous guidance of low to mid single digit). Adjusted EBITDA guidance was also raised to $15 million to $18 million (vs. previous guidance of low single digit to mid single digit million range). Zooming out, we think this wasn't a perfect quarter, but it was certainly a solid one.
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What is the market telling us:
The Honest Company's shares are quite volatile and over the last year have had 53 moves greater than 5%. But moves this big are very rare even for The Honest Company and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 5 months ago, when the stock gained 33.9% on the news that the company reported fourth-quarter results that blew past analysts' revenue, adjusted EBITDA and EPS expectations. The market was expecting negative EBITDA, but the company delivered positive EBITDA. Full year 2024 guidance for revenue calls for "low-to-mid single digit percentage" revenue growth and "positive low-single digit to mid-single digit millions adjusted EBITDA", which is encouraging. Even better news is that beyond 2024, this algorithm will improve to 4% to 6% annual revenue growth and continued adjusted EBITDA margin expansion. Zooming out, we think this was an impressive quarter that should delight shareholders.
The Honest Company is up 14.6% since the beginning of the year, but at $3.66 per share it is still trading 21.7% below its 52-week high of $4.67 from March 2024. Investors who bought $1,000 worth of The Honest Company's shares at the IPO in May 2021 would now be looking at an investment worth $158.91.
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