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From a cursory perspective, haircare specialist Olaplex (OLPX) hardly seems like a viable candidate for an investment opportunity. Down almost 23% since the start of the new year, OLPX stock has practically seen nothing but red ink since its public market debut in 2021. Glaringly, in the trailing one-year period, shares plunged 76%. Frankly, you don’t typically lose that much value unless there’s a reason for it.
If that wasn’t warning enough, the Barchart Technical Opinion rating suggests that OLPX stock symbolizes a sell – and not just a garden-variety sell but a “100% sell.” Further, both near term and long-term indicators suggest that OLPX will continue along the negative trajectory. To top it off, Olaplex’s 60-month beta pings at 1.65, indicating volatility of a magnitude far greater than the benchmark equities index.
Finally on the bearish front, Wall Street analysts peg OLPX stock as a consensus hold. This assessment breaks down as three strong buys, seven holds, one moderate sell and two strong sells. True, the consensus isn’t directly bearish, which is positive to some extent. However, that two analysts are willing to post “strong sell” ratings tells you everything you need to know about Olaplex’s disappointing market performance.
However, not every sign suggests that OLPX stock is doomed though the bulls can use more support. In particular, the company for its most recent fourth-quarter earnings report came out with earnings per share of 7 cents. This beat the consensus target of 6 cents per share. In fairness, though, Olaplex posted an EPS of 10 cents in the year-ago quarter.
Also, on the top line, Olaplex posted revenue of $130.72 million, which missed the consensus estimate by 1.39%. It also slipped below the year-ago tally of $166.5 million.
Despite the challenging framework surrounding OLPX stock, contrarian investors may have a discount on their hands. Here are three factors to consider.
OLPX Stock Benefits from Unusual Options Volume
Following the close of the March 28 session, OLPX stock represented a top highlight for Barchart’s screener for unusual stock options volume. Specifically, total volume came out to 4,033 contracts against an open interest reading of 19,425. Further, the delta between the Tuesday session volume and the trailing one-month average volume came out to 837.91%.
Drilling into the details, call volume reached a staggering 4,024 contracts versus put volume of only 9 contracts. Therefore, the put/call volume ratio comes out to a lowly 0.002, which on paper favors the bulls.
To be sure, unusual options volume by itself doesn’t guarantee one implication over the other. However, It may provide insights as to what the “smart money” is doing with large volume orders. It’s possible that with such a severe erosion of market value, daring traders see upside potential, particularly because it’s fundamentals appear compelling, which undergirds the second point below.
Olaplex Enjoys Positive Sector-Specific Fundamentals
According to the Motley Fool, OLPX stock represents a no-brainer stock to buy, in part because of the underlying company’s position in its marketplace. As the publication stated, “…the company ranked first or second in the 15 most essential brand qualities compared to its 11 most prominent premium haircare peers.”
Further, Motley Fool added that “[t]he beauty of this immense brand power is the premium pricing Olaplex's products command, which allowed for a net income margin of 26% in Q4 -- despite the company's slowdown.”
By leveraging the aforementioned high margins, “…Olaplex plans to increase its marketing spend by 75% in 2023, focusing on its strong digital and social media presence.” Also, as the number one haircare brand on Instagram, “the company's popularity among younger generations on a global scale leaves it well-positioned to capitalize on this increased marketing spend.”
Normalization Trends Should Incentive the Beauty Industry
Lastly, Olaplex introduced itself as a publicly traded security during the middle of the COVID-19 pandemic. In the following year, the consumer economy struggled with blistering inflation. Thus, from a timing perspective, OLPX stock probably couldn’t have made its debut at a worse time. Nevertheless, it’s also reasonable to state that society is coming out of the tunnel, at least in terms of pandemic-related fears and headwinds.
Because of the broader normalization trends, the workplace will likely experience a return to in-office operations. With various companies laying off their workers, employers no longer have to play ball with their employees. Essentially, upper management realizes that the threat of quitting for greener pastures elsewhere rings a little more hollow now that other enterprises are likewise pink-slipping their workers.
Bottom line, you may see more people back in the corporate nine-to-five grind, which then incentivizes the wider beauty industry. Therefore, OLPX stock might not be completely dead money, though it’s an investment geared for hardened speculators.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
