LOVE - Lovesac stock price: buy the dip or sell the rip?
2024-04-11 09:32:27 ET
The Lovesac Company (NASDAQ: LOVE) stock price was punched on Thursday after the company’s guidance missed analysts’ estimates. After closing at $23.35 on Wednesday, the stock plunged by over 16% to $19.16, its lowest point since November last year.
Good quarter but weak guidance
Lovesac, the popular furniture company, published encouraging financial results but warned that its growth as slowing. Revenue for the quarter came in at $250 million, a 5% increase from the same period in 2023.
This increase happened even after the company boosted its advertising and marketing spending by 14% to $29.5 million. For the year, Lovesac’s revenue jumped by 5% to $700 million.
Lovesac also boosted its net profit during the quarter. It rose to over $31 million from the previous $26.2 million. The company increased the number of showrooms to 230 from the previous 195.
The main reason why the Lovesac stock price crashed is that the company’s guidance was weaker than expected. For the year, it sees its revenue ranging between $700 million and $770 million. Its net income will be between $18 million and $27 million.
According to Yahoo Finance, the average revenue estimate for the year is $715 million followed by $765 million in 2025. These numbers mean that the company is expected to grow at a slower pace than it used to before.
On the positive side, the company seems to be quite undervalued. Its forward PE ratio stands at 16.6 while its forward EV to EBITDA is 8.62. The two numbers are a few points below the industry median of 18 and 10.
Lovesac stock price analysis
The other positive catalyst for the Lovesac’s share price is that the company has formed a bullish pattern. It has formed an inverse head and shoulders pattern, which is a bullish sign. Today’s drop pushed it to the right side of the pattern.
The stock has moved below the 50-day and 100-day Exponential Moving Averages (EMA). Therefore, there is a likelihood that the stock will bounce back in the next few days. This retreat, however, will be invalidated if it drops below the right side of the inverse H&S pattern.
If a rebound happens, the next price to watch will be the neckline at $28. On the other hand, a break below the right shoulder could see it tank to the head section at $14.13.
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