Online apparel resale company Poshmark, Inc.’s (POSH - Get Rating) trailing-12-months active buyers reached 7.3 million in the third quarter of 2021, increasing 17% year-over-year. The Redwood City. Calif.-based company recently launched the first-of-its-kind Brand Closet program, opening its social marketplace to brands. It also acquired Suede One, a platform that combines machine learning, computer vision, and expert human review to virtually authenticate sneakers.

However, the company posted a wider-than-expected third-quarter loss and warned that Apple’s (AAPL) recent privacy changes would lead to higher marketing spending. 

The stock has lost 9.2% in price over the past month and 29.1% over the past three months to close Friday’s trading session at $20.97. In addition, it is currently trading 80% below its all-time high of $104.98, which it hit on January 14, 2021. So, POSH’s near-term prospects look uncertain.

Here is what could influence POSH’s performance in the coming months:

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For its fiscal third quarter, ended September 30, 2021, POSH’s revenue surged 16% year-over-year to $79.70 million. The company’s gross merchandise value increased 18% year-over-year to $442.50 million.

However, its adjusted EBITDA for the quarter decreased 98.3% year-over-year to $257,000. In comparison, its non-GAAP operating loss came in at $570,000, compared to $14.28 million in income in the prior-year period. Its net loss was $7.20 million, compared to $10.77 million in income in the year-ago period.

Ongoing Investigations

A law firm is investigating potential claims against POSH on concerns over whether it complied with federal securities laws. There are allegations that the company reported a  $0.09 per share loss on Nov. 9 compared to a profit of $0.44 per share in the third quarter of 2020, citing difficult comparisons and the headwinds of Apple privacy changes contributing to its financial results.

Low Profitability

In terms of trailing-12-month CAPEX/Sales, POSH’s 0.62% is 73.6% lower than the 2.36% industry average. Its 0.71% trailing-12-month asset turnover ratio is 32.9% lower than the 1.06% industry average. Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA are negative versus the 17.64%, 7.65%, and 6.26% respective industry averages.

Stretched Valuation

In terms of forward EV/EBITDA, POSH’s 283.51x is 2,623.3% higher than the 10.41 industry average. Likewise, its 74.89x forward P/CF is 458.9% higher than the13.40x  industry average. Moreover, the stock’s forward P/S and EV/S of 4.92x and 3.09x, respectively, are higher than the 1.32x and 1.49x industry averages.

Unfavorable Analyst Estimates

Analysts expect POSH’s EPS to decrease 240% in the current quarter and 144% in the current year. Also, its EPS is expected to remain negative in the current quarter, current year, and next year.

POWR Ratings Don’t Indicate Enough Upside

POSH has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. POSH has a C grade for Value, which is in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Quality, which is in sync with its lower-than-industry profitability ratios. In addition, POSH has a D grade for Stability, consistent with its beta of 1.79.

MPLN also has a C grade for Growth and a D grade for Sentiment. This is justified because analysts expect its EPS to decline in the near term.

And the stock has a C grade for Momentum, which is consistent with its 73.1% loss over the past nine months and 52.1% decline over the past six months.

POSH is ranked #51 of 69 stocks in the D-rated Consumer Goods industry. Click here to access all of POSH’s ratings.

Bottom Line

POSH is currently trading below its 50-day and 200-day moving averages of $23.91 and $33.82, respectively, indicating a downtrend. Furthermore, it could continue declining in the near term due to concerns over increased marketing costs and slow sales growth. So, we think the stock looks overvalued at its current price level, and it could be wise to wait for a better entry point in the stock.

How Does Poshmark (POSH) Stack Up Against its Peers?

While POSH has an overall POWR Rating of C, one might want to consider investing in the following Consumer Goods stocks with an A (Strong Buy) rating: Mannatech, Incorporated (MTEX - Get Rating), Société BIC SA (BICEY - Get Rating), and Ennis, Inc. (EBF - Get Rating).

POSH shares were trading at $20.69 per share on Monday afternoon, down $0.28 (-1.34%). Year-to-date, POSH has declined -79.62%, versus a 26.07% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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