Saturday, 24 August 2024
by BD Banks
Shares of prestige hair care company Olaplex (NASDAQ: OLPX) have risen 16% this week as of 12:30 p.m. ET on Friday, according to data provided by S&P Global Market Intelligence. Since reporting respectable earnings on Aug. 6, the company’s shares have spiked 32%.
The primary catalyst for the company’s run-up in share price this week seems to be tied to an announcement on Wednesday that executive chairman John Bilbrey bought nearly $400,000 worth of Olaplex stock. While insider purchases are relatively common for most stocks, these were the first open-market buys of Olaplex stock by an insider in over a year, which has the market optimistic about the company’s turnaround prospects.
After going public with a share price above $20 in 2021, Olaplex’s current share price of roughly $2.40 more closely resembles that of a penny stock than a potential value investment at first glance. In 2023 alone, sales declined a staggering 35%, with much of this drop coming from its retail customers accumulating too much inventory (and subsequently delaying new purchases) as sales had boomed in the post-pandemic landscape.
Despite this alarming drop, Olaplex delivered sequential sales growth in its most recent quarter and even had four of the five top-selling prestige hair products so far in 2024, according to Circana’s U.S. data. This leadership, coupled with the fact that the company has generated $159 million and $48 million in free cash flow (FCF) and net income, respectively, over the last year, argues that Olaplex is by no means your stereotypical penny stock.
Combining the company’s profitability and leadership in the prestige hair products niche with Chairman Bilbrey’s recent interest in the stock, Olaplex is worth monitoring — especially while it trades at just 10 times FCF.
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Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.