After its IPO of 15 million common shares at $26, well above the originally expected $17 – $19 range, RealReal (NASDAQ: REAL) is still holding up at a recent price of $26.51. But if investors have plenty of online goods retailers to choose from, what makes Real stock. Good buy?
RealReal is a luxury goods seller of consigned clothing, fine jewelry, home décor, and fine art. That way, consumers are 100% certain they getting real brand name products.
Though its revenues topped $207 million in 2018, it also lost $76 million, its GMV (gross merchandising value) was $711 million. These impressive figures are giving RealReal shareholders confidence that shares will keep going up over time.
In today’s healthy market where online sales keep growing, REAL could prove a real winner. Etsy (NASDAQ: ETSY) is in an uptrend despite trading at over 80 times earnings. Even Wayfair (NYSE: W) trades 1.8 times sales, thanks to investor enthusiasm for online retailers.
Macroeconomic Risks for Real Stock
Because the economic cycle heavily influences retail sales, a big downturn could wipe out many online retailers.
Luxury goods are typically very sensitive to the economy. So, in good times like today, RealReal faces no significant risks of falling demand. But once it faces its first downturn, the stock could plunge as demand wanes.
Still, if the economy worsens, RealReal may get an influx in high-end goods from sellers strapped for cash.
In the near-term, RealReal’s valuations are high due to investor interest in the stock, and venture capitalists who funded RealReal were the first to cash out through the IPO. They locked in gains first.
Bullish investors may potentially play the upside story as revenues grow. Conversely, bearish investors could start betting against RealReal if the economy starts to weaken.
Impressive Product Line and Website But…
RealReal has a very impressive website and product line. Its new arrivals include goods from Chanel and Luis Vuitton. Pricey diamond rings retailing for $6,000 are listed for $2,000 on the site.
A site review from customers is the single most important check investors should do. On Trustpilot, the site has a one out of five-star rating based on 229 reviews. And on Reviewopedia, 7 users also give an average of 1 star out of five.
Related Investments and Real Stock
Investors who are unsure of taking a long or short position on RealReal have plenty of other retailers to consider. FarFetch (NYSE:FTCH) shares peaked at $32 in March and closed recently at $19.93. The stock fell due to profit-taking following its earnings report posted on Feb. 28.
In Q4, FarFetch lost $0.03 a share as revenue soared 54.6% Y/Y to $195.53 million. On Feb. 25, it announced a strategic ecommerce partnership with Harrods. The partnership could offer more diversity compared to holding RealReal stock.
The shine in Etsy waned after the company reported Q1/2019 results. The company reported Revenue of $169 million. Its EPS of $0.24 is more than double from the $0.10 reported a year-ago.
Etsy raised its full-year 2019 GMS growth estimates to 18 – 21%. It expects revenue growing 30 – 32%, while adjusted EBITDA margin will be between 23-25%.
China’s JD.com (NASDAQ: JD) sells premium goods. Its powerful backend logistics network allows the firm to ship goods to customers within 1-2 days. Though JD stock is up 61% from 52-week lows, it continues to benefit from strong growth prospects ahead.
Your Real Stock Takeaway
The boom and bust cycle in retail is difficult to predict. When it comes to online luxury goods, the trends may change quickly.
Investors who are good at noticing strong spending trends may invest in RealReal. But these same investors need to know when to bail out of RealReal before sales start falling.
Similarly, investing in Etsy or JD.com requires having the same intuition for trends. But Etsy and JD have a more diversified product line and not all goods are expensive, high-end luxury. That could help keep sales going should consumer spending start getting weaker.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.