Economic, Supply Challenges Will Restrict Beauty Demand Yet Spark Recovery

Key Takeaways

• Macroeconomic pressures, regulatory complexities, and operational disruptions may limit revenue growth, margin improvement, and pace of international expansion despite favorable market trends.
  
• Strong brand innovation and digital strategies boost engagement, but rising competition, investment needs, and evolving retail dynamics expose Waldencast to ongoing volatility and margin pressure.
  
• Supply chain disruptions, brand concentration risk, and shifting market dynamics could undermine revenue stability and profitability, requiring bold strategic adjustments and sustained investment to regain growth momentum.

Catalysts

Operates in the beauty and wellness industry in the United States, Canada, Europe, the Middle East, India, Australia, and New Zealand.

• Although Waldencast is well-positioned to benefit from rising global interest in health, wellness, and self-care, persistent macroeconomic pressures such as soft discretionary spending and upcoming tariff uncertainties may constrain demand for premium beauty and personal care products, which could limit net revenue growth even as category trends remain favorable.
  
• While expanding digital channels and direct-to-consumer strategies support long-term growth opportunities and higher customer retention, intensified competition from both established brands and smaller digital-native players is likely to require continued, heavy investment in marketing and e-commerce infrastructure, potentially eroding net margins over time.
  
• Despite the significant runway for international expansion, including markets like Asia-Pacific and Latin America, escalating regulatory scrutiny and compliance requirements for cosmetics could increase cost of goods sold and limit the pace of product launches, weighing on long-term earnings.
  
• Although the company is streamlining and consolidating its supply chain to better respond to demand and reduce exposure to external shocks, recent operational disruptions and inventory out-of-stock incidents highlight ongoing integration risks, which may hamper the anticipated improvement in gross margin and operational efficiency.
  
• While Waldencast's ongoing brand innovation and launch of blockbuster products like Hydro Grip Gel Skin Tint and new additions to Obagi's dermatological portfolio have driven viral success and earned media value, delays in international launches, inventory imbalances, and retail partner adjustments expose the company to sales volatility and the risk of underperforming revenue relative to investor expectations.

Waldencast Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Waldencast compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Waldencast's revenue will grow by 16.0% annually over the next 3 years.
• The bearish analysts are not forecasting that Waldencast will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Waldencast's profit margin will increase from -15.5% to the average US Personal Products industry of 5.6% in 3 years.
• If Waldencast's profit margin were to converge on the industry average, you could expect earnings to reach $24.0 million (and earnings per share of $0.19) by about August 2028, up from $-42.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.8x on those 2028 earnings, up from -4.6x today. This future PE is lower than the current PE for the US Personal Products industry at 20.7x.
• Analysts expect the number of shares outstanding to grow by 1.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.53%, as per the Simply Wall St company report.

Waldencast Future Earnings Per Share Growth

Risks

• The company reported a net revenue decline of over 4 percent year over year and a sharp 15 percent revenue drop for Milk Makeup, indicating volatility in topline growth and significant reliance on product launches and short-term promotional success, which may threaten future revenue stability and predictability.
  
• Ongoing supply chain restructuring and execution challenges, evidenced by out-of-stock issues and lengthy lead times, directly disrupted sales in key product lines and could continue to limit product availability, negatively impacting revenue and gross margins in the long term if not fully resolved.
  
• Heavy dependence on two primary brands, Milk Makeup and Obagi Medical, increases concentration risk; if either encounters market saturation, reputational setbacks, or innovation slowdowns, it could lead to earnings instability and greater risk to net margins.
  
• The company faces headwinds from a decelerating beauty market and softer consumer sentiment, particularly in international markets and online channels, which, combined with potential macroeconomic pressures like tariffs and inflation, could suppress premium product demand and pose long-term risks to revenue growth.
  
• Increasing investments in marketing and a shift toward higher top-of-funnel spending may be necessary to sustain customer acquisition as organic and influencer-driven growth becomes less effective over time, potentially resulting in escalating SG&A expenses and compressing net earnings if revenue growth does not outpace these costs.

Valuation

• The assumed bearish price target for Waldencast is $2.4, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Waldencast's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $2.4.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $427.6 million, earnings will come to $24.0 million, and it would be trading on a PE ratio of 16.8x, assuming you use a discount rate of 9.5%.
• Given the current share price of $1.73, the bearish analyst price target of $2.4 is 27.9% higher.
• 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.