New Launches Will Reshape US Personal Products Amid Margin Risks

Key Takeaways

• Innovation in product development and a new strategic vision aim to boost sales growth and brand prominence.
  
• Operational efficiencies and international partnership strengthening are expected to improve margins and enhance global revenue.
  
• Challenges in executing strategic priorities and increasing competition could impact revenue growth and earnings if international performance and professional channel strategies don't improve.

Catalysts

Through its subsidiaries, develops, manufactures, and sells haircare products in the United States and internationally.

• The company is focusing on innovation to grow its addressable market, such as the No. 5 Leave-In Conditioner and the upcoming No. 05 Scalp Longevity Treatment, which are expected to drive future sales growth and increase revenue.
  
• A renewed emphasis on professional (PRO) channels, including deeper engagement and new products like the Bond Shaper Curl Rebuilding Treatment, is aimed at rejuvenating this key channel, potentially enhancing revenue streams.
  
• The new strategic vision, Bonds and Beyond, emphasizes brand demand creation through revamped visual identity and marketing strategies, which could improve brand prominence and enhance long-term revenue growth.
  
• Investments in talent and organizational restructuring, including a new executive leadership team, are expected to drive operational efficiencies and potentially improve net margins over time.
  
• The rationalization and strengthening of international distributor partnerships focus on more efficient global operations, which might increase international sales and contribute positively to future revenue.

Olaplex Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Olaplex Holdings's revenue will grow by 1.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.6% today to 0.8% in 3 years time.
• Analysts expect earnings to reach $3.5 million (and earnings per share of $0.02) by about April 2028, down from $19.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 485.8x on those 2028 earnings, up from 41.9x today. This future PE is greater than the current PE for the US Personal Products industry at 21.2x.
• Analysts expect the number of shares outstanding to grow by 0.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.56%, as per the Simply Wall St company report.

Olaplex Holdings Future Earnings Per Share Growth

Risks

• Olaplex's net sales and adjusted EBITDA declined in 2024, reflecting the company's ongoing transformation and indicating potential future challenges in revenue growth.
  
• The company's international sales performance showed weakness, which could continue to impact overall revenue if the international strategy does not effectively turn around.
  
• Increased marketing and promotional intensity have affected the company's gross margin, potentially impacting future net margins if this trend continues.
  
• Competition in the professional channel is increasing, and if Olaplex cannot stabilize this channel, it may lead to a further decline in revenue.
  
• The company's success heavily depends on executing its strategic priorities, such as generating brand demand and harnessing innovation, and failure to do so may impact earnings growth.

Valuation

• The analysts have a consensus price target of $1.975 for Olaplex Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4.0, and the most bearish reporting a price target of just $1.2.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $447.7 million, earnings will come to $3.5 million, and it would be trading on a PE ratio of 485.8x, assuming you use a discount rate of 8.6%.
• Given the current share price of $1.23, the analyst price target of $1.98 is 37.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.