Lifestyle brand Warby Parker Inc. (WRBY) designs, manufactures, and retails eyewear products for men and women. WRBY made its stock market debut on September 29 at $54.05 per share via a direct listing. The New York City company’s stock soared 36% in price on its first trading session to close at $54.49. However, the stock has gained a mere 2.1% since it went public, closing yesterday’s trading session at $54.16. Also, it has declined 5.8% over the past month.

WRBY shares closed the trading session 9% higher on November 12 following the company’s first quarterly earnings release as a public company that day. The direct-to-consumer lifestyle brand reported a 32% increase in net revenues to $137.37 million in its fiscal third quarter, ended September 30, while its net loss and net loss per share were $91.07 million and $1.45, respectively. The company’s loss was wider-than-expected, but sales beat Wall Street's estimates.

The company is seeing rising foot traffic in its brick-and-mortar stores, while it also reported more customer engagement on its digital platform. “We’re finding that more and more of our customers are engaging with our digital tools and our stores at various parts of their journey, so it’s not one or the other and really kind of a part of our direct consumer offering,” explained co-CEO David Gilboa. The number of active customers jumped by 395,000, or 23% year-over-year.

WRBY has raised its fiscal 2021 outlook. The company now expects net revenue in the range of $539.50 million - $542.0 million, representing 37% - 38% growth versus its fiscal year 2020. Its adjusted EBITDA margin is expected to be in the range of approximately 4% - 5%.

Here is what could shape WRBY’s performance in the near term:

Stretched Valuation

In terms of forward EV/Sales, WRBY is currently trading at 11.90x, which is 696.6% higher than the 1.49x industry average. Its 229.59 forward EV/EBITDA ratio is 2,064.8% higher than the 10.61 industry average. Also, WRBY’s 12.39x and 15.22x respective forward Price/Sales and Price/Book are 870.9% and 305.8% higher than the industry averages.

Mixed Profitability

WRBY’s 58.89% gross profit margin is 64.4% higher than the 35.82% industry average. Also, its 7.18% levered FCF margin is 14.8% higher than the 6.25%  industry average.

However, WRBY’s ROA and ROTC of negative 22.34% and 18.21% compare with the 6.25% and 7.65% industry averages.

Solid Growth in Non-GAAP Measures

WRBY’s adjusted gross profit increased 26% year-over-year to $80.59 million in its fiscal third quarter, ended September 30. Its adjusted net income attributable to common stock stood at $2.26 million, up 548.7% from the same period last year. The company’s adjusted EPS increased 200% year-over-year to $0.03. In addition, its adjusted EBITDA grew 105.8% from its year-ago value to $11.19 million.

POWR Ratings Reflect Uncertainty

WRBY has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Quality, which is consistent with its mixed profitability.

WRBY has an F grade for Value. The company’s lofty valuation justifies this grade.

Of the 174 stocks in the Medical - Devices & Equipment industry, WRBY is ranked #117.

Beyond what I have stated above, one can also view WRBY’s grades for Sentiment, Growth, Momentum, and Stability here.

Click here to checkout our Healthcare Sector Report for 2021

Bottom Line

WRBY has faced several operational challenges due to pandemic-led store closures and reduced demand over the past year. However, rising foot traffic in its brick-and-mortar stores as restrictions ease, and its growing digital sales should help reverse its losses. But the stock looks overvalued at its current price. Also, considering its negative ROE and ROTC, we think it could be wise to wait for a better entry point in the stock.

How Does Warby Parker Inc. (WRBY) Stack Up Against its Peers?

While WRBY has an overall POWR Rating of C, one might want to consider taking a look at its industry peers, Fonar Corporation (FONR), Olympus Corporation (OCPNY), and iRadimed Corporation (IRMD), which have an A (Strong Buy) rating.

WRBY shares were unchanged in premarket trading Friday. Year-to-date, WRBY has declined -0.61%, versus a 26.87% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

More...