But short interest makes it difficult to recommend a long position at the moment
Like many direct-to-consumer (D2C) companies, Warby Parker (NYSE:WRBY) was a pandemic winner. D2C companies made their bones by buying online advertising via Meta Platforms (NASDAQ:FB) Facebook platform. This was a cost-effective way to reach millions of potential customers. And they had a way of measuring the effectiveness of their spend.
As shareholders of Meta can attest, the script has flipped. Facebook isn’t the slam dunk that it used to be for advertisers. And that is playing out in the price of WRBY stock which is trading at 56% below its 52-week high. However, since Warby Parker only went public via a direct listing in October 2021, there isn’t a full-year sample size yet. And post-IPO stocks are typically highly volatile.
Why D2C May Not be Dead
As someone who has a background in marketing, I won’t dismiss the impact of advertising on brand awareness. However, I don’t think it tells the entire story. The direct-to-consumer model is catering to two important trends. First, consumers want a curated experience.
That’s one of the appealing parts of Warby Parker which sends consumers five pairs of frames to try on based on their online profile. It’s a similar model to Stitch Fix (NASDAQ:SFIX) that delivers customers a box of curated items based on their style preferences.
Another factor that shouldn’t be ignored is the fact that consumers don’t have to leave their home. The pandemic has changed some behaviors. Telehealth is becoming more accepted. And that would certainly be true of something like eyeglasses. Once a consumer has their prescription, Warby Parker gives them the opportunity to try on glasses in their own homes with their own lighting and other considerations.
What Will Earnings Say?
Analysts are expecting Warby Parker to deliver negative earnings per share of 10 cents. Investors will also be looking to for improvement on the company’s $137.4 million in revenue that it posted in the prior quarter. In its last earnings report, the company was forecasting fiscal year revenue for the full year to be between $539.5 million to $542 million. That would be a 37% to 38% increase over FY 2020 and 46% over FY 2019.
However, the company posted positive non-GAAP earnings in the last quarter. So, if the company can’t repeat the feat, shares could be headed lower.
Short Interest is High
Shorting stocks has become a very popular trading strategy. If you’re comfortable with the risk/reward nature of short selling, Warby Parker may be for you. But if you’re looking to take a long position, the short interest which currently stands at around 19% should give you pause. Particularly when it’s taking nearly 11 days for short positions to cover.
That’s why I’d put WRBY on your watchlist. The stock is not oversold from a technical level. And the stock has been in an uncomfortable pattern of hitting lower lows. But MarketBeat is here to help you make money. So I’ll cater to your optimistic side and point out that the stock may be finding a floor at around $24 a share. If that’s the case, we may be getting to a point where the stock becomes attractive.
Analysts folllowed by MarketBeat give WRBY stock a consensus price target of $59.50 per share which is a 126% upside. The most recent action from analyst was Goldman Sachs (NYSE:GS) lowering its price target from $68 to $42. But even that would be a 59% upside from its current price. And speaking of investment banks, I can’t help but notice that WRBY stock is drawing lots of attention from institutional buyers in the last two quarters.
This is not a stock that’s without risk. But if you believe that the company’s business model is still viable, then Warby Parker is one to watch.