Owlet Stock Giving a Bargain Opportunity

Baby monitor and products maker Owlet NYSE: OWLT stock has been pummeled so far in 2021. Most recently shares collapsed over (-20%) to all-time lows on new that the SEC has allowed warrant holders to exercise their options. This could lead to an additional 18.1 million shares to be issued on top of the 11 million shares issued and outstanding as of Q2 2021. While the float is still small, this is another special purpose acquisition corporation (SPAC) reverse merger that has punished shareholders after the business combination with Sandbridge Acquisition Corporation was completed. As the reopening continues to accelerate with COVID vaccinations, the return to work momentum continues to speed up. The need for monitoring devices should continue to uptick as the pandemic caused a surge in pet adoptions and the post-pandemic baby boom is expected as COVID fears subside. The mechanic impacts of stock dilution aside, Owlet is showing accelerating top-line and margin growth. Prudent investors can watch for opportunistic pullbacks in shares of Owlet to gain exposure on the resurgence of a post-pandemic baby boom.

Q2 FY 2021 Earnings Release

On Aug. 12, 2021, Owlet reported its Q2 2021 earnings for the quarter ended in June 2021. The Company reported revenue growth of 35.8% year-over-year (YoY) to $24.9 million. Excluding the $2.2 million initial sell-in of the Smart Sock 3 and Monitor Duo 3 products in preparation of Q3 2020 launch, revenue growth would have been 54% YoY. Gross margin for the quarter rose 600 basis points to 54.2%. Net loss for the quarter was (-$0.49) compared to (-$0.10) in same period year ago. Adjusted net lose was (-$0.30) versus (-$0.06). The Company reiterates full-year 2021 guidance of $107 in revenues with gross margin expected between 54% to 55%. Adjusted EBITDA margin is expected at (-24.5%). Owlet CEO Kurt Workman commented, “We had an incredible quarter, recording strong year-over-year and sequential revenue growth, with significant year-over-year margin expansion. These results reflect the growing demand for our Smart Sock and Monitor Duo products as we expand our connected nursery solutions and care platform. We also reached an exciting milestone as we surpassed 1 million babies monitored with the Smart Sock, an important step toward our mission of every baby and every parent having access to technology like that offered by Owlet.” He continued, “International expansion is key to our mission as well, and our second quarter launches throughout Europe represent great progress. Another important part of our recent, as well as our projected future successes, is having the right people to drive it forward. We believe this week’s on-time release of the brand new Smart Sock Plus product is a testament to the brilliant leadership and talent we’ve added to our team.”

Conference Call Takeaways

CEO Workman set the tone, “The second quarter of this year was a record one for Owlet. We generated $24.9 million in revenue, a 14% sequential increase over the first quarter of this. Gross margins were 54% representing an increase of over 600 basis points from the second quarter of 2020. We're happy to announce that over 1 million babies have now used Owlet which continues to be the number one brand in our category. In the few weeks since becoming a public company we've already seen great coverage and received strong interest from top banks and investors. This is a pivotal moment for Owlet and we're leaning into all of this incredible momentum to deliver key results. Some of you may be new to the Owlet story, and our mission to solve fundamental problems through innovative technology tools and resources for parents. There are over $24 million caregivers in the U.S. alone between conception and kindergarten. The average U.S. parent is spending $12,000 per child each year. And beyond that the startling reality in health care is that primary urgent care and ER visits just for ages zero to four total over $30 billion annually in the U.S.” Traffic rose 50% YoY to the website. CEO Workman touched on the FDA application, “We're also actively working on our application for FDA clearance on both RX version of the sock called Babies that are designed for sick babies, as well as an over the counter version called OTT design for healthy babies. If we receive FDA clearance, we intend to seek insurance reimbursement, which we believe would increase accessibility to more families and more babies. The next steps we're at are focusing on awareness creation and advocacy. We're continuing to make progress toward medical device authorization clearance.”

Smart Sock Plus

CEO Workman concluded, “Owlet's next steps in this key focus area are growing the Smart Sock Plus, full commercial release of the wellness versions and continued progress toward the launch of our new tele-health service. Overall, we believe Owlet is poised to win the category as we're perfectly positioned to achieve a parent-centered and tech-enabled healthcare platform at home. The Owlet ecosystem creates true value. There's always a high switching cost for customers. We built a large competitive moat capped off by our massive data set of health. We hold 33 times in our full-stack integration versions across hardware, software, and services. Owlet also has a big advantage as the first mover and we're working to deepen our penetration in all geographies, fueled in part by the additional funding from our public company business combination.”

OWLT Price Trajectories

Using the rifle charts on the weekly and daily times frames enable a precision view on the price action for OWLT stock. The weekly rifle chart has an inverse pup breakdown with a falling 5-period moving average (MA) near the $8.48 Fibonacci (fib) level. The weekly 15-period MA is at the $9.33 fib with lower Bollinger Bands (BBs) at $6.52. The weekly stochastic formed bearish mini inverse pup on the daily market structure high (MSH) sell trigger on the breakdown below $8.50. The daily rifle chart downtrend is stalling as the 5-period MA flattens near the $6.27 fib. The daily stochastic is attempting to rise after crossing up under the 10-band. The daily market structure low (MSL) buy triggers on a breakout through the $7.35 level. The daily 15-period MA is near the $7.71 fib which would be the target on the channel tightening if the daily stochastic can cross up through the 20-band. Prudent investors can watch for opportunistic pullback levels at the $6.27 fib, $5.95 fib, $5.51 sticky 5s, $5.18 fib, $4.77 fib, $4.47 fib, and the $4.19 fib. Upside trajectories range from the $9.33 fib to the $13.41 fib level.