The Adore Beauty (ASX:ABY) share price surged 10% higher today

The Adore Beauty Group Limited (ASX:ABY) share price surged 10% higher after completing its IPO on Friday…

| More on:
miniature shopping trolley filled with cosmetic items

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Adore Beauty Group Limited (ASX: ABY) share price has been a very strong performer after completing its IPO this morning.

At one stage today, the online beauty retailer's shares were up as much as 10% to $7.42.

The Adore Beauty share price has since dropped back from there and is currently fetching $7.00, which is up 3.7% from its IPO price of $6.75.

The Adore Beauty IPO.

This morning Adore Beauty listed on the Australian share market having raised $269.5 million at a price of $6.75 per share through its IPO.

This gave the company a market capitalisation of $635.3 million, which certainly is a far cry from its humble beginnings.

Adore Beauty was created in a garage in Melbourne 20 years ago and funded by a $12,000 loan from family.

Today, the company is expecting to generate revenue of $158.2 million in calendar year 2020, with gross profit of $50.8 million and net profit after tax of $3.5 million.

Based on the latter, the company's shares have a forward price to earnings ratio somewhere in the range of 185x. This is a notable premium to Kogan.com Ltd (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW).

What is Adore Beauty's business model?

Adore beauty generates its revenue through online sales of third-party beauty and personal care products to Australian and New Zealand consumers.

Over the last few years the company has attracted and retained a large and active customer base. Management notes that it has grown over 278% over the past four years to over 590,000 Active Customers today.

Pleasingly, the company still has a long growth runway. Frost & Sullivan estimates that beauty and personal care products sales in Australia (both online and offline) reached $10.9 billion in 2019.

Furthermore, the research firm estimates the online penetration rate of the beauty and personal care market in Australia is just 7.3%. This lags international markets such as the United States and the United Kingdom, with estimated online penetration levels of 15.4% and 12.7%, respectively.

Adore Beauty believes that online penetration of the beauty and personal care market in Australia will continue to increase, and that COVID-19 may accelerate the rate of online penetration going forward.

What now?

The company intends to use the proceeds of its IPO to support its growth strategy and future growth opportunities.

This includes growing its brand awareness, strengthening its offering, and expanding into new markets and adjacent categories.

Time will tell if it can live up to the high expectations that are implied by its high PE ratio.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia has recommended Kogan.com ltd and Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

ASX shares Business man marking buy on board and underlining it
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Share Gainers

Why Amaero, AMP, Block, and South32 shares are racing higher today

These shares are starting the week on a positive note. But why?

Read more »

Man with a hand on his head looks at a red stock market chart showing a falling share price.
Share Fallers

Why Brightstar, Eagers Automotive, Regis Resources, and Westpac shares are sinking

These shares are starting the week in the red. But why?

Read more »

growth charts with small cap written on a sticky note
Small Cap Shares

Expert names 3 ASX small-cap stocks to buy in July

ASX small-cap stocks have greater ability to generate outsized returns, but can be difficult to discover.

Read more »

A young couple hug each other and smile at the camera standing in front of their brand new luxury car
Share Market News

Are CAR Group shares a buy ahead of reporting season?

Will CAR Group shares take off from here?

Read more »

Worker on a laptop at an oil and gas pipeline.
Broker Notes

How much upside does Macquarie predict for Santos shares?

Let’s find out what the broker says.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Broker Notes

Does Macquarie rate REA Group shares a buy, hold or sell?

Let's have a look at what the broker thinks.

Read more »