.jpg)
While no one indicator can reliably predict market trajectory, checking the pulse in Barchart’s screener for unusual stock options volume offers an excellent starting point. Essentially, extraordinary volume against usual norms in the derivatives arena can potentially symbolize big moves by the smart money. Further, with enormous interest paid to The Beauty Health Co. (SKIN) options contracts on Thursday, it’s worth examining for adventurous investors.
Founded in 1997, Beauty Health manufactures and sells serum-based hydradermabrasion systems and aesthetic products. According to its website, the entity delivers millions of skin health experiences every year that help consumers reinvent their relationship with their skin, bodies and self-confidence. Sold for all ages, genders, skin tones and skin types in more than 90 countries, it’s possible that SKIN stock is on the cusp of a market breakthrough.
After all, the world has more or less reopened for business. And with our everyday lives disrupted because of the COVID-19 pandemic, the pent-up demand for socialization and new experience – the so-called revenge travel phenomenon – may end up lifting SKIN stock organically. At the same time, Beauty Health presents significant risks, with its shares slipping over 11% since the January opener.
So, which narrative will win out? Below are both pros and cons to consider.
Options Interest and Encouraging Fundamentals Bolster SKIN Stock
As alluded to above, SKIN stock represented one of the highlights for unusual options volume following the close of the July 27 session. Specifically, total volume hit 10,752 contracts against an open interest reading of 22,167. Further, the delta between the Thursday session volume and the trailing one-month average metric came out to 978.44%.
Drilling down, call volume hit 10,689 contracts while put volume only mustered 63 contracts. On paper, this pairing yielded a put/call volume ratio of less than 0.01, significantly favoring the bulls. Also, Barchart notes that the put/call open interest ratio sits at 0.13, which also presents a very optimistic framework.
If that wasn’t enough of a positive jolt, analysts covering SKIN stock peg it a consensus moderate buy, breaking down as six strong buys and three holds. Also, the experts’ mean price target stands at $17.75, implying upside potential of 117%.
Fundamentally, the future looks bright for SKIN stock. First, more companies are recalling their workers and implementing strategies to normalize the workplace. While it’s not corporate employees’ favorite subject, the reality is that upper management teams are steadily cracking down on remote work privileges. Because of this dynamic, demand for personal care and beauty products should increase.
Second, broad social normalization trends involve many aspects. One of course is the aforementioned revenge travel phenomenon. However, another element to consider is personal, as in dating and relationships. With fears of COVID-19 fading, people are looking forward to connecting with others. That’s especially the case because the pandemic denied most socialization avenues.
Therefore, as people have reason to look their very best, beauty care products should see increased demand, boding well for SKIN stock.
Not Everything is Positive for Beauty Health
While SKIN stock seems intriguing based on the totality of the above narrative, it would be inaccurate to state that Beauty Health has no risks. It’s got plenty.
First, as mentioned earlier, SKIN stock doesn’t print the best performances in the charts. We talked about the year-to-date loss. Over the past 365 days, SKIN gave up over 40% of equity value. Since its public market debut in late 2020, Beauty Health shares slipped about 20%.
Second, while the company posts strong revenue growth – jumping from $119.1 million in 2020 to almost $366 million last year – it’s not a profitable enterprise, at least not consistently. In 2020 and 2021, Beauty Health suffered net losses, sharply so in the latter year. In 2022, the company generated net income of $44.4 million. However, on a trailing-12-month basis, management is looking at a net loss of $10.4 million.
Even more problematic, SKIN stock doesn’t offer a discount despite its market volatility. For example, the underlying company runs a sales multiple of 2.93, which is significantly more overpriced than the retail (special lines) sector’s average revenue multiple of 0.72.
Further, SKIN stock trades at a forward earnings multiple of 26.18. However, the underlying sector’s average forward multiple comes in lower at 22.31.
Finally, on the fundamental front, Beauty Health may bring a relevant product to the table. However, given the economic challenges of the time, the trade-down effect may end up hurting the enterprise.
Final Thoughts: SKIN Stock May Be Worth Speculation
While the pros and cons of Beauty Health are relatively evenly balanced, I’d give the speculative nod to the bullish argument. Right now, the tight labor market suggests that consumers have more than enough discretionary funds to spend on beauty care products. Moreover, as various social factors return to pre-pandemic norms, the incentive to look good becomes heightened. Therefore, market gamblers may want to look into SKIN stock.
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.
