Why Revolve Group Dropped 11.7% This Week

The online retailer is now down 48% this year.

The online retailer is now down 48% this year.

What happened

Shares of Revolve Group (RVLV 2.85%) dropped 11.7% this week, according to S&P Global Market Intelligence. Investors are still selling off the online fashion retailer after a disappointing first-quarter earnings report and lowered price targets from multiple Wall Street analysts. Shares were at one point down 18% this week and are now down 48% just this year.

So what

The selling didn’t stop this week in Revolve Group stock, even though there was no news posted from the company. However, for those interested, let’s go through the earnings report and price target changes from last week.

A person sitting on steps in fashionable clothing.

Image source: Getty Images.

On May 3, Revolve posted its Q1 earnings report for the first three months of 2022. Revenue grew 58% year over year to $283 million, with net income of $22.6 million. The online fashion retailer, which owns two brands (Revolve and Forward), is seeing strong growth with the resurgence of in-person activities and social events, with average customers up 38% in the last 12 months. Forward, a luxury website Revolve Group bought a few years ago, is doing quite well at the moment, with 71% year-over-year growth in Q1.

Even though Revolve Group’s numbers looked solid, investors were still disappointed with the report and decided to sell off the stock. This was likely either because earnings per share (EPS) came in worse than expected or because of something management said on the conference call regarding future demand. As an individual investor, it is hard to pinpoint exactly what the reason was, but the sell-off occurred nonetheless.

This price drop has caused analysts to change their ratings on Revolve Group stock, with seven analysts downgrading shares last week. This bearish sentiment could have trickled over and kept the selling going this week.

Now what

Looking at Revolve Group’s earnings report, I thought the numbers looked solid and am very surprised the stock has sold off so much in the last two weeks. At the current stock price of $29, it has a market cap of $2.15 billion. Over the last 12 months, the company has generated $112.5 million in operating income, giving the stock a trailing price-to-operating income (P/OI) of approximately 19, right around the market average.

With a low P/OI, now looks like the time to pick up some shares of Revolve Group on the cheap if you believe in the long-term trajectory of this business. 

Read this article on Motley Fool

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