Shares of RealReal rose 5% after BofA Securities upgraded the stock to Buy from Neutral and maintained its price target at $26, implying a 50% upside.
The company, which authenticates and consigns preowned luxury goods, has had a rough year, falling 11% year to date, compared with the S&P 500‘s16% gain.
BofA Securities analyst Michael McGovern argues that RealReal was disproportionately impacted by Covid-19 compared with other e-commerce marketplaces because customers were less likely to consign goods. From a valuation standpoint, the stock is trading at two times consensus 2023 sales while peers trade at six times, notes McGovern, who also suggests that margins and multiple expansion will see improvement in the third quarter.
The luxury industry is on track for a superb 2021. Already, luxury-goods companies have had a strong start to the year, reporting year-over-year revenue growth of 27%, with analysts expecting growth to continue surging; BofA’s report on luxury goods forecasts second-quarter revenue growth of 93% year over year and 12% compared with the prepandemic second quarter of 2019.
RealReal’s strategy of expanding its retail footprint should also help mitigate its supply-side woes and help it further benefit from reopening, suggests McGovern. According to the company’s first-quarter earnings report, buyers who purchased in-store spent 4.4 times more compared with online-only buyers. Additionally, the company revealed in its fourth-quarter earnings report last year that consignors who interact with a retail location consign 1.5 times more retail value than other consignors.
For ESG investors, RealReal could be a compelling play, as it benefits from a movement to create a circular economy in which people recycle and repair products rather than throwing them away and buying new ones. In its social-impact report, the company claims to have kept over 18 million luxury items in circulation while saving 18,732 metric tons of carbon.
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