A popular fashion retailer among younger consumers could be a long-term winner.

Branding is an underrated aspect of investing. Most products outside of pharmaceuticals or technology — a lot of consumer goods, for example — can be easily copied. Yet some of the most successful stocks belong to these consumer brands that customers love and remain loyal to anyway.

Fashion brand and retailer Revolve Group ( RVLV 2.20%) could be the next example to shine. The company has grown significantly in recent years, and the stock’s fundamentals could set shareholders up for solid investment returns going forward. New-age advertising in full effect

Magazines and cable television have long served as platforms for fashion brands to reach customers. You still see that today, especially for designer brands. Revolve is an e-commerce fashion retailer that markets to Millennial and Generation Z consumers, selling merchandise from more than 1,000 brands, both third-party and owned.

Young consumers grew up in a different era than older consumers, with much of their engagement occurring online. Revolve has incorporated that into its marketing strategy by working with a network of famous social media influencers and celebrities, including Kendall Jenner and Emily Ratajkowski. Additionally, Revolve has a brand ambassador program that lets social media influencers share products on their pages, with links to track purchases and earn commissions.

Instead of throwing money at magazine ads and commercials, Revolve is incentivizing those within its target market (with tens of millions of followers) to advertise, sometimes at no upfront cost to the company — sharing profits with the influencers who generate sales for the company. It virtually assures that Revolve is getting value from its ad spending because, by definition, commissions don’t exist without sales. The numbers show that the business is strong

Sales momentum has been somewhat volatile over the past several years as younger consumers are understandably vulnerable to the economy. They typically aren’t as financially established, and many have student debt. You can see below that stimulus helped juice revenue growth in 2021, but surging inflation and a shakier economy in 2022 have slowed growth back down. However, the long-term picture is that of a growing business; revenue growth has averaged more than 24% annually over the past three years. RVLV Revenue (Quarterly YoY Growth) data by YCharts One could see long-term growth continuing as long as Revolve’s marketing strategy keeps working, and there isn’t any evidence right now that it won’t. The short term should be the concern for investors, but fear not — the company seems financially poised to endure a recession and tightening customer wallets.

You can see below that free cash flow has dipped due to rising fulfillment costs ( like many other retailers ) but has remained positive. More importantly, Revolve has a healthy cash balance of $237 million against zero debt. Even if Revolve begins burning cash, it seems to have plenty of it to get by. Investors will want to look for free cash flow and sales growth to stabilize, then rebound as inflation stabilizes and recedes. Bear markets and recessions can become more about survival than short-term growth, and fortunately, Revolve looks prepared for the hardship that may come its way. Meanwhile, the stock plunges

Mr. Market sees all this bad news — especially in a bear market when investors are scared — and sells the stock. Revolve’s shares have fallen a whopping 72% from their peak, despite revenue at an all-time high, a healthy balance sheet, and an effective marketing strategy.

Nonetheless, these things happen. The stock trades at a price-to-sales ratio of just 1.7, its lowest since the COVID-19 crash in March 2020. The short term is full of uncertainty; nobody knows how long inflation will soar or bear markets will terrorize Wall Street.

But what is known is that Revolve is generating cash profits, growing its revenue at a double-digit rate, and has a healthy balance sheet to ride out the storm. That seems like a great potential bounce-back candidate when the brighter days eventually come. Should you invest $1,000 in Revolve Group, Inc. right now?

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