RVLV - Revolve Group: Margin Weakness Lowers Upside (Rating Downgrade)

2024-02-01 04:10:41 ET

Summary

• Revolve's stock has underperformed the S&P very slightly after my previous write-up with a buy rating, published on the 6th of September.
• The company's weak margins have persisted and continue to fall. The margin performance and competitive industry raise alarms about sustainable long-term margins.
• RVLV's Q4 earnings are expected to be similar in performance to recent quarters, although the EPS decrease is estimated to widen.
• My updated DCF model estimates the stock to be fairly valued, constituting a rating downgrade into a hold rating for the time being.

Since my previous write-up on Revolve Group ( RVLV ) published on the 6th of September, the company has reported its Q3 results. The stock has appreciated by around 6% from the publishing date into the current stock price, compared to an S&P 500 performance of 10% - Revolve's stock has had a slight underperformance compared to the index. Still, I downgraded my rating from the previous "buy" rating to "hold", as the recent margin performance is worrying and raises concerns about the company's long-term margin level....

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