According to a Reuters report, U.S.-based initial public offerings hit an annual record in less than six months’ time earlier this year. Naturally, software technology names dominate the new listings which might detract some investors from Olaplex (NASDAQ:OLPX) stock.
A hair care specialist, Olaplex doesn’t exactly resonate as your typical high-profile IPO. Nevertheless, OLPX stock is well worth considering for its surprising relevance.
As I mentioned in my detailed IPO coverage of the company for Benzinga, multiple factors bolster its upside narrative. For one thing, the timing of OLPX stock hitting the IPO calendar couldn’t have been better. Last year, the country had its pajama moment, with worker bees only needing to look modestly presentable. However, with society gearing up for the return to the office, you can bet your bottom dollar that hair care will be pivotal.
Indeed, fashion and lifestyle blog Corporette emphasizes the importance of professional-looking hairstyles before attending a job interview: nothing too distracting while avoiding a disheveled appearance. Particularly for women – Olaplex’s core consumer demographic – the issue is a personally and societally important one. Thus, the company’s “science-enabled, technology-driven” beauty solutions easily resonate with its customers, especially under the circumstances.
To be fair, though, not everything about OLPX stock is encouraging. Mainly, the concern is about valuation. As our own Mark Hake explained, under the structure of the deal, the “public will own just 11.4% of the company.” Therefore, retail investors are paying a hefty premium for what is essentially a small piece of the pie.
Moreover, the overvaluation argument isn’t just about OLPX stock. This year’s IPO market – particularly involving special purpose acquisition companies – have capitalized on the masses’ willingness to pay rich premiums.
We all know what happened next in most cases, drawing concerns about Olaplex.
OLPX Stock Runs a Credible Narrative
However, not everyone is worried about OLPX stock, including fellow InvestorPlace contributor Will Ashworth. Regarding questions about debt that Hake also raised, Ashworth responded that the “net debt is less than 4% of Olaplex’s current market capitalization of $18.8 billion. That’s a tiny sliver of its capitalization. Hardly worth getting your knickers in a knot.”
More importantly, investors must consider what that debt was used for, my colleague stated. “Founded in 2014, Olaplex’s hair care products are a cut above most brands you see on your local drug store’s shelves.” And that’s really where the potential for OLPX stock lies.
As I mentioned in my Benzinga article, women simply have more complex hair issues based on both biology and sociology. Therefore, as we move back into the office, working folks don’t want to trust their mane to any old brand.
Though a seemingly inconsequential consideration based on its mundane nature, the underlying power of OLPX stock is the sheer importance of hair care to women, Olaplex’s core consumer demographic. Per a revealing report from The Wall Street Journal, Birmingham, Alabama–based dermatologist Corey L. Hartman stated that “Up to 40 percent of women experience noticeable hair loss before the age of 40, with as many as 80 percent seeing hair loss by the age of 60.”
Further, the WSJ stated that for women, “hair loss can take a particularly harsh toll, as it’s often seen as a sign of impaired physical or mental health.” Indeed, both scientists and sociologists confirm that societies consider hair loss in men to be far more acceptable than in women. While no one is suggesting that Olaplex is the end-all, be-all to this problem, the company does provide hair-thinning solutions.
Yes, OLPX stock is a small piece of a pie. But that piece will likely only grow in pertinence.
Consumers Are Ready to Spend
One final factor bolstering Olaplex is that its target consumer has the funds to spend on its premium products. At one point during the pandemic, Americans were saving $34 for every $100 earned. Even now, the saving rate of $9 per $100 earned is above the multi-year average of around $7.
Now, I get that people were out and about buying cars and homes and cryptocurrencies. But perhaps counterintuitively, Bloomberg recently reported that the “U.S. stock of pandemic savings hasn’t shrunk.” This stat implies that consumers can readily spend on premium hair care products, especially because they’re a) not that expensive all things considered and b) their return on investment is quite high.
The ROI isn’t necessarily tied to a financial metric. However, if someone can secure a job because she took care of her hair through Olaplex products compared to her competitors, that’s money well spent.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.