Shares of Revolve Group IncRVLV have dropped nearly 19% over the last month.
Piper Sandler suggests the company is on the cusp of gross margin growth due to better-controlled inventory and potential stability or modest improvements in return rates.
Analyst Insight: Edward Yruma has increased Revolve Group’s rating from Neutral to Overweight and raised the price target from $16 to $21.
Thesis: In explaining the upgrade, Yruma noted that Revolve Group’s 2023 performance was hampered primarily by external factors.
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According to Yruma, Revolve’s active customer base “remained positive despite a challenging spending environment.” Yruma anticipates a replacement cycle in 2024 due to the high fashion content and relatively narrow target age range in the apparel segment.
Yruma further expects Revolve to enhance its gross margin by at least 100-200 basis points over the next two years, potentially resulting in a ~22% uptick in earnings per share.
The analyst also emphasized Revolve’s robust balance sheet, which provides the company with significant capital and strategic flexibility.
Stock Movement: Revolve Group’s shares had risen by 0.35% to $14.45 at the time of this publication on Wednesday.
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