The Honest Company (HNST)

Personal care company The Honest Company (NASDAQ:HNST) fell short of the markets revenue expectations in Q3 CY2025, with sales falling 6.7% year on year to $92.57 million. Its GAAP profit of $0.01 per share was $0.02 above 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 .

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $383.1 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. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.

As you can see below, The Honest Company grew its sales at a decent 7.1% compounded annual growth rate over the last three years. This shows its offerings generated slightly more demand than the average consumer staples company, a useful starting point for our analysis.

This quarter, The Honest Company missed Wall Street’s estimates and reported a rather uninspiring 6.7% year-on-year revenue decline, generating $92.57 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 7.2% over the next 12 months, similar to its three-year rate. This projection is above the sector average and suggests its newer products will help maintain its historical top-line performance.

The Honest Company has good unit economics for a consumer staples company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 37.5% gross margin over the last two years. That means for every $100 in revenue, $62.52 went towards paying for raw materials, production of goods, transportation, and distribution.

This quarter, The Honest Company’s gross profit margin was 37.3%, marking a 1.4 percentage point decrease from 38.7% in the same quarter last year. On a wider time horizon, however, The Honest Company’s full-year margin has been trending up over the past 12 months, increasing by 2.7 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

The Honest Company was roughly breakeven when averaging the last two years of quarterly operating profits, lousy for a consumer staples business. This result is surprising given its high gross margin as a starting point.

On the plus side, The Honest Company’s operating margin rose by 2.4 percentage points over the last year, as its sales growth gave it operating leverage.

In Q3, The Honest Company’s breakeven margin was in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

In Q3, The Honest Company reported EPS of $0.01, in line with the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects The Honest Company’s full-year EPS of $0.06 to grow 80%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

The Honest Company broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, we can see that The Honest Company’s margin dropped by 13.2 percentage points over the last year. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business.

The Honest Company broke even from a free cash flow perspective in Q3. The company’s cash profitability regressed as it was 15.8 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

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 27.8%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer staples sector.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

The Honest Company is a well-capitalized company with $71.45 million of cash and $6.48 million of debt on its balance sheet. This $64.97 million net cash position is 17.5% 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 good to see The Honest Company 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 EBITDA guidance missed and its revenue fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 12.6% to $2.89 immediately after reporting.

Updated: November 25, 2025 at 10:00 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.

The Honest Company doesn’t pass our quality test. Although its revenue growth was decent over the last three years, it’s expected to deteriorate over the next 12 months and its cash profitability fell over the last year. And while the company’s EPS growth over the last three years has been fantastic, the downside is its brand caters to a niche market.

The Honest Company’s P/E ratio based on the next 12 months is 21.8x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $3.83 on the company (compared to the current share price of $2.64).

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.