Poshmark, Inc. (POSH) operates as a social commerce marketplace for new and second-hand style products in the United States, Canada, India, and Australia. The company offers apparel, footwear, beauty, home, electronics, and accessories. It has more than 7.6 million active buyers.
Last week, POSH management agreed to be acquired by Naver Corp., a South Korea-based e-commerce company, for $1.2 billion. The deal values the online marketplace at less than half the price it went public in early 2021. Naver is paying $17.90 per share in cash, while POSH priced its initial public offering at $42 a share in January 2021.
While the COVID-19 pandemic-led surge in online shopping benefitted e-commerce retailers significantly, POSH’s losses have widened lately, and its revenue growth has slowed this year. The company reported $90.90 million in revenue in the fiscal 2022 first quarter ended in March.
POSH’s revenue declined to $89.10 million in the second quarter ended on June 30, and it expects revenue to come in between $85 million and $87 million for the third quarter. Furthermore, its net loss worsened by 797.9% year-over-year to $22.88 million for the second quarter.
Barclays analyst Trevor Young recently downgraded POSH from Overweight to Equal-Weight. Also, Wedbush research analysts revised their recommendation for the stock to Neutral from Outperform and said that the recent acquisition deal might create a floor for the competitors.
POSH has gained 58.7% over the past month to close the last trading session at $17.76. However, the stock has declined 25% over the past year.
Here is what I think could influence POSH’s performance in the upcoming months:
Poor Financials
For the second quarter of fiscal 2022 ended June 30, 2022, POSH’s total costs and expenses increased 33.3% year-over-year to $112.02 million. Its non-GAAP loss from operations came in at $10.84 million, compared to an income of $5.70 million in the prior-year period. Also, the company’s adjusted EBITDA loss stood at $9.82 million versus a $6.55 million adjusted EBITDA in the previous year’s quarter.
Furthermore, the company's net loss widened by 797.9% year-over-year to $22.88 million. Its net loss per share attributable to common stockholders worsened by 866.7% from the year-ago value to $0.20. Its non-GAAP free cash outflow came in at $3.48 million, compared to an inflow of $25.03 million in the year-ago period.
Weak Growth Prospects
Analysts expect revenue in the fiscal 2022 third quarter (ended September 2022) to increase 8.8% year-over-year to $86.65 million. However, the company’s loss per share for the to-be-reported quarter is expected to come in at $0.28, indicating a widening of 209.6% from the same period in 2021.
Furthermore, analysts expect POSH’s loss per share for the fiscal year 2022 (ending December 2022) to worsen by 67.3% from the previous year to $1.02. Also, the company is expected to report a loss per share of $0.87 for fiscal 2023.
Consensus Rating and Price Target Indicate Downside
Each of the eight Wall Street analysts that rated POSH rated it Hold. The 12-month median price target of $15.30 indicates a 13.9% downside. The price targets range from a low of $11.00 to a high of $18.00.
Frothy Valuation
In terms of forward EV/Sales, POSH’s 2.33x is 125.3% higher than the 1.03x industry average. Its 3.92x forward Price/Sales is 398% higher than the 0.79x industry average. Likewise, the stock’s forward Price/Book of 3.61x is 53.1% higher than the 2.36x industry average.
Low Profitability
POSH’s trailing-12-month EBIT margin of a negative 17.2% compares to the industry average of 8.13%. Its trailing-12-month EBITDA margin and net income margin of negative 16.13% and 17.03% compare to the industry averages of 11.25% and 5.69%, respectively.
In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 14.26%, 8.90%, and 9.52% compare to the industry averages of 14.91%, 6.88%, and 5.12%, respectively. Its trailing-12-month CAPEX/Sales of 0.53% is 82.4% lower than the industry average of 3.01%.
POWR Ratings Reflect Bleak Prospects
POSH has an overall rating of D, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. It has a grade of F for growth, in sync with its weak earnings growth estimates. In addition, the stock has a D grade for Value, consistent with its higher-than-industry valuation metrics.
POSH is ranked #52 out of 59 stocks in the Consumer Goods industry.
Beyond what I have stated above, we have also given POSH grades for Sentiment, Quality, Stability, and Momentum. Get all POSH ratings here.
Bottom Line
While the online-fashion reseller POSH did well during the pandemic due to increased consumer inclination toward online shopping, its growth declined in the last few quarters. The company has been incurring huge losses recently. Moreover, analysts are bearish about its growth prospects.
Following the news of POSH’s acquisition by Naver for $1.2 billion, many analysts downgraded their recommendations for the stock. Given POSH’s elevated valuation, low profitability, and bleak growth prospects, we think it could be wise to avoid the stock now. Also, the stock is already trading close to the price offered by Naver, indicating no upside.
How Does Poshmark, Inc. (POSH) Stack Up Against Its Peers?
POSH has an overall POWR Rating of D. Therefore, one might want to consider investing in other Consumer Goods stocks, Ennis, Inc. (EBF) and Mannatech Incorporated (MTEX) with an A (Strong Buy) rating, and Vivint Smart Home (VVNT) with a B (Buy) rating.
POSH shares fell $0.15 (-0.84%) in premarket trading Monday. Year-to-date, POSH has gained 3.41%, versus a -22.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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