The Honest Company is a great source for sustainable, clean personal care products for babies and families, but will its stock, HNST, help you clean up in the stock market?
|The Honest Company, Inc.|
|12130 Millennium Drive, Los Angeles, CA, United States|
If you enjoy the soaps, shampoos, and other products of The Honest Company, you might wonder if stock in the company could be a natural addition to your investment portfolio. We’ll look at HNST, how it started, and where it’s going.
Most importantly, we’ll look at whether HNST is a bargain sure to rise in value or a growth stock to avoid.
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About The Honest Company
Founded by actress Jessica Alba in 2011, The Honest Company focuses on clean living by offering sustainable and well-designed products ranging from diapers and wipes to skin, personal care, household products, and wellness products.
The Honest Company also includes Honest Beauty products, which can be purchased online as well as in retail stores such as Target and Ulta.
The company weathered a few storms, such as when The Honest Company was sued over baby formula that wasn’t as organic as claimed, and when The Wall Street Journal reported that their laundry detergent contained sodium lauryl sulfate, an ingredient it claimed wasn’t used.
When HNST had its IPO 10 years later, the stock jumped 40 percent, according to Fortune. However, it then fell below its initial price after the trading day ended.
The Honest Company is led by CEO Nick Vlahos and now trades at about half of its initial price of $16 a share. The Los Angeles-based company is valued at $1.7 billion and has no debt on its books, which is unusual for a younger company.
Getting an online shopping and subscription boost from pandemic shutdowns, The Honest Company saw 27 percent revenue growth in the past year. However, the company isn’t profitable yet, which is a possible red flag for investors.
That’s where The Honest Company has been and where it is today. Now it’s up to the bulls and the bears to decide whether HNST is a buy that’s headed for profits and growth tomorrow.
The Honest Company has a growing fan base of shoppers and subscribers who are powering its revenue growth. Customers enjoy having natural products delivered to their homes, saving them a trip to the store during a pandemic.
Jessica Alba started The Honest Company after she became a mother, inspired by her search for natural and sustainable products for her baby and household.
As a child, she suffered from allergies, and as a parent, Alba has lobbied Congress over the need for products that are safer for families and their environment.
Today, many families are still looking for organic products to use as part of a healthy lifestyle. They enjoy the convenience of subscriptions and online shopping for natural products they trust.
Now trading at $8.45, HNST is far from its 52-week high of $23.11 and only about 3 cents above its 52-week low. This indicates that HNST is a bargain right now.
With sales growing more than 10 percent over the last quarter, HNST is growing toward profitability. More families are trusting The Honest Company and its products.
HNST could be an attractive purchase by household product names such as Unilever or Procter & Gamble. HNST shareholders, in that scenario, could indeed clean up, seeing a dramatic rise in what they would be paid for shares.
Even if The Honest Company isn’t purchased by a larger corporation, HNST could perform well in the future. At its current price, HNST will likely rise in value in the future.
HNST may have a share price that’s low right now, but that doesn’t mean it’s not overvalued. It’s unlikely that the company will be a takeover target until it proves that its rising revenue isn’t a pandemic fluke.
While revenue is growing for The Honest Company, it’s projecting a modest loss in EBITDA. It has a trailing loss record of $19 million, which is moving in the wrong direction since it had previously announced a loss of $14 million.
The Honest Company isn’t expected to turn a profit until 2023, and there are still plenty of question marks since the company would have to have a growth rate of 74 percent to break even. That would take $1.5 billion in revenue. In 2020, the revenue of HNST was $300.5 million.
The company’s net income in the last quarter was down $5.14 million, a drop of more than 158 percent.
The Honest Company has plenty of competition, too. Organic and sustainable personal care and household products are available through Amazon (AMZN) as well as companies such as Whole Foods, owned by Amazon, and Kroger (KR), which has a Simple Truth organic brand.
Thrive Market also offers personal care and household products that are sustainable and natural online, and it’s reportedly considering an IPO.
For all these reasons, there are better options for growth stocks and stocks involving natural products out there.
The Honest Company Competitors
You may love buying baby items from The Honest Company or popping an organic lip balm from Honest Beauty in your makeup bag, but should you add shares of HNST to your portfolio?
We think there may be better options for growth stocks. While HNST is seeing a lower price per share that might signal a buying opportunity, the company hasn’t broken even yet, has competitors that might limit growth in sales, and doesn’t have a corporate suitor for a buyout.
Research a few other stocks such as General Mills (GIS), which manufactures organic foods through the Annie’s brand, Kroger (KR) or Amazon, or growth stock options across all sectors, and you’ll find healthier companies with a greater likelihood of profit for your portfolio.
We think you should avoid buying HNST shares. If you own them, consider them as a hold and hope for a takeover. Bulls shouldn’t let HNST be the bulk of their portfolio.
Should you invest $1,000 in The Honest Company right now?
Before you consider the The Honest Company, you'll want to hear this.
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I’m Donny. I’m a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.