Global online marketplace for authenticated luxury goods The RealReal, Inc. (REAL) sells consigned clothing, fine jewelry, watches, fine art, and home decor. The leading reseller witnessed a 31% jump in its gross merchandise value (GMV) in the first quarter of 2022, compared to the same period last year. Although REAL saw decent growth in top-and bottom-lines, the stock price slumped 14.9% over the past five days and 51.1% over the past month. While inflation has been a boon for the second-hand luxury goods market, the online retailer’s losses ballooned.

Closing its last session at $3.26, REAL’s stock is trading 85.7% below its 52-week high of $22.83, indicating bearishness. Moreover, it is currently trading lower than its 50-day and 200-day moving averages of $6.23 and $10.52, respectively, which indicates a downtrend.

Additionally, as the online luxury goods marketplace space gets more crowded with more young players entering the market, REAL’s unprofitability could lead to investors losing interest in the stock.

Here’s what could influence REAL’s performance in the upcoming months:

Competitive Luxury Resale Landscape

The luxury resale market is expected to reach $68.53 billion by 2028, exhibiting a CAGR of 15.5% from 2021 to 2028. Strong demand for less expensive luxury items as the stigma associated with the consumption of those goods continues to wane has been a tailwind for the popular players in the market. However, the entry of several young competitors in the online luxury resale space could put pressure on the stock price of existing players like REAL. Online consignment company ThredUp, which went public last year, has been gradually growing its market share by diversifying its online resale platform. This increasingly competitive space could hurt the top and bottom-line growth of REAL.

Unstable Financials

Although REAL’s total revenue came in at $147 million, representing a 48% year-over-year increase in the first quarter ended March 31, 2022, the company’s loss from operations rose 3.7% from the year-ago value to $54.71 million. Additionally, the online retailer’s adjusted EBITDA came in at a negative $35.3 million for the quarter, while the net loss amounted to $57.41 million. Also, its net decrease in cash and cash equivalents came in at $57.16 million, compared to a net increase in cash and cash equivalents of $197.01 million in the prior-year period.

Negative Profit Margin

The company’s trailing-12-month EBITDA margin and net income margin stood at a negative 39.9% and 46.1%, respectively. And its ROE, ROA, and ROTC came in at a negative 337.9%, 34%, and 20.7%, respectively. Also, its trailing-12-month cash from operations stood at a negative 143.70 million. REAL’s trailing-12-month levered free cash flow margin stood at a negative 19.5%.

POWR Ratings Reflect Bleak Prospects

REAL has an overall rating of D, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. REAL has a C grade for Growth. This is reflective of the stock’s inadequate financials and weak growth potential.

The company has a Quality grade of C, which is in sync with its negative profit margin. Also, it has a Stability grade of D, consistent with its relatively high beta of 2.46.

Beyond the grades that I’ve highlighted, one can check out additional REAL ratings for Sentiment, Value, and Momentum here. REAL is ranked #67 of 71 stocks in the A-rated Fashion & Luxury industry.

Bottom Line

Even though inflation tailwinds and strategic initiatives to offer unique and coveted items in its online marketplace have driven significant revenue growth in the first quarter, its substantial losses and weak cash balance could put downward pressure on its stock. Moreover, given the growing competition from emerging players in the luxury resale industry, its growth prospects look bleak. So, the stock is best avoided now.

How Does The RealReal (REAL) Stack Up Against Its Peers?

While REAL has a D (Sell) rating in our proprietary rating system, one might want to consider taking a look at its industry peers, J.Jill, Inc. (JILL), Caleres, Inc. (CAL), and Movado Group Inc. (MOV), which have an A (Strong Buy) rating.

REAL shares fell $3.26 (-100.00%) in premarket trading Monday. Year-to-date, REAL has declined -71.92%, versus a -16.99% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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