Stock Analysis

Rent the Runway (NASDAQ:RENT shareholders incur further losses as stock declines 16% this week, taking one-year losses to 53%

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NasdaqCM:RENT
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Investing in stocks comes with the risk that the share price will fall. Unfortunately, shareholders of Rent the Runway, Inc. (NASDAQ:RENT) have suffered share price declines over the last year. The share price has slid 53% in that time. Because Rent the Runway hasn't been listed for many years, the market is still learning about how the business performs. The falls have accelerated recently, with the share price down 39% in the last three months.

If the past week is anything to go by, investor sentiment for Rent the Runway isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Rent the Runway

SWOT Analysis for Rent the Runway

Strength
  • Debt is well covered by earnings.
Weakness
  • Shareholders have been diluted in the past year.
Opportunity
  • Forecast to reduce losses next year.
  • Good value based on P/S ratio compared to estimated Fair P/S ratio.
Threat
  • Debt is not well covered by operating cash flow.
  • Has less than 3 years of cash runway based on current free cash flow.
  • Total liabilities exceed total assets, which raises the risk of financial distress.
  • Not expected to become profitable over the next 3 years.

Because Rent the Runway made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Rent the Runway grew its revenue by 46% over the last year. We think that is pretty nice growth. Unfortunately it seems investors wanted more, because the share price is down 53% in that time. It is of course possible that the business will still deliver strong growth, it will just take longer than expected to do it. To our minds it isn't enough to just look at revenue, anyway. Always consider when profits will flow.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
NasdaqGS:RENT Earnings and Revenue Growth May 27th 2023

This free interactive report on Rent the Runway's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While Rent the Runway shareholders are down 53% for the year, the market itself is up 1.0%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 39%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Rent the Runway is showing 5 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.