Olaplex (OLPX)

Hair care company Olaplex (NASDAQ:OLPX) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 1.9% year on year to $96.98 million. The company’s full-year revenue guidance of $420.5 million at the midpoint came in 0.6% above analysts’ estimates. Its GAAP loss of $0 per share was in line with 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 have short-term success, but a top-tier one grows for years.

With $420.7 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 demand was weak over the last three years. Its sales fell by 14.2% annually, a tough starting point for our analysis.

This quarter, Olaplex’s revenue fell by 1.9% year on year to $96.98 million but beat Wall Street’s estimates by 3.9%.

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

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

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% gross margin over the last two years. That means Olaplex only paid its suppliers $29.02 for every $100 in revenue.

This quarter, Olaplex’s gross profit margin was 69.5%, down 4.9 percentage points year on year and missing analysts’ estimates by 4.3%. Olaplex’s full-year margin has also been trending down over the past 12 months, decreasing by 1.5 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.

Olaplex has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer staples sector, boasting an average operating margin of 17.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Olaplex’s operating margin decreased by 7.5 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.

In Q1, Olaplex generated an operating profit margin of 8.7%, down 11.1 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.

Sadly for Olaplex, its EPS declined by 61.3% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q1, Olaplex reported EPS at $0, down from $0.01 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Olaplex to perform poorly. Analysts forecast its full-year EPS of $0.02 will hit $0.

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.

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 an eye-popping 35.3% 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).

Although Olaplex hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 15.5%, higher than most consumer staples businesses.

Olaplex reported $580.9 million of cash and $649.1 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 $119.8 million of EBITDA over the last 12 months, we view Olaplex’s 0.6× net-debt-to-EBITDA ratio as safe. We also see its $18.13 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.

We were impressed by how Olaplex beat analysts’ revenue and EBITDA expectations this quarter. On the other hand, its gross margin missed. Zooming out, we think this was a solid print. The market seemed to be hoping for more, and the stock traded down 6.8% to $1.23 immediately following the results.

Updated: May 22, 2025 at 10:44 PM EDT

Before making an investment decision, investors should account for Olaplex’s business fundamentals and valuation in addition to what happened in the latest quarter.

Olaplex doesn’t pass our quality test. To kick things 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 16.7x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $1.99 on the company (compared to the current share price of $1.28).

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.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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