BRLT - Brilliant Earth Group: Unconvincing Business But Trading Incredibly Cheap

2024-03-22 14:49:53 ET

Summary

• BRLT has grown revenue well (CAGR: +22%), owing to its ethics-first approach, product development, and brand/geographical expansion.
• The company has experienced a slowdown, however, as its cyclical nature and weaknesses in its business model have contributed to a decline in margins alongside its growth rate.
• We are not convinced by BRLT’s competitive position, which appears highly fragile. The business needs significant scale to protect itself long-term, which could be challenging to achieve.
• We believe the company will struggle in the coming years to define itself, especially as market share growth needs to be consistent, but will certainly outperform current levels.
• Given the expectation of some improvement, BRLT’s NTM EBITDA multiple of 3.3x appears completely misguided. Investors have written the business off incorrectly in our view.

Introduction and thesis

Brilliant Earth Group ( BRLT ) is a leading retailer of ethically sourced fine jewelry, specializing in engagement rings, wedding bands, and other diamond and gemstone jewelry. Founded in 2005 and headquartered in San Francisco, California, the company is committed to sustainability, social responsibility, and transparency in the jewelry industry. Brilliant Earth offers a wide range of products, including conflict-free diamonds, recycled precious metals, and ethically sourced gemstones.

BRLT has developed well during the last 5 years, albeit remains a small fish in a large ocean. The company has a long way to go before we can confidently say it has a tangible moat and a protectable position. It is highly fragile and will likely see further volatility in the coming decade....

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