The Honest Company Stock is Looking Honestly Good

Baby, beauty, and personal care products maker The Honest Company NASDAQ: HNST stock has been sinking since its IPO debut. The celebrity founder actress Jessica Alba instilled her beliefs for sustainable, natural, and ethical-based products and a Company ecosystem. The Company was created out of an essential need for hypoallergenic, clean, and natural products that her first child could safely use. Her celebrity status adds tangible and material benefits in the form of brand image and reputation. The Company is both a pandemic and post-pandemic benefactor serving consumers in the Gen-Alpha through Gen-X demographic. The hygiene, sanitizer, and cleaning products sold by the Company gained from COVID-19 tailwinds, just as the skincare segment should gain during the reopening. The acceleration of COVID vaccinations pushes us closer to the new normal, where socially conscious and sustainable products are part of the lifestyle especially among millennials who are users of skincare products. Prudent investors can monitor for opportunistic pullback levels to consider scaling into these newly minted socially conscious lifestyle product makers.

Q1 FY 2021 Earnings Release

On June 16, 2021, The Honest Company released its fiscal first-quarter 2021 results for the quarter ending March 2021. The Company reported a net loss of (-$0.13) compared to a net loss of (-$0.06) consensus analyst estimates compared to $0.01 profit in the same period year ago. Revenues rose 12% year-over-year (YoY) to $81 million versus $79.3 consensus analyst estimates. Digital channel revenues rose 2% to $42.5 million YoY. Skin and Personal Care sales rose 42% driven by strong volumes and House and Wellness sales rose 53% driven by sanitization and disinfecting products released in H2 2020. The Honest Company CEO Nick Vlahos stated, “We had a strong start to 2021, reporting double-digit sales growth. This growth reflects the ongoing success of our strategic initiatives focused on Content, Community and Commerce, powerful innovation, and category expansion. Honest is dedicated to providing safe, clean and effective products to consumers around the world and we are confident our strategy will help drive our mission of inspiriting everyone to love living consciously.”

Conference Call Takeaways

CEO Vlahos set the tone, “We’re excited to speak with you on our first call as a public company. Honest is dedicated to providing safe, clean, and effective products to consumers around the world and becoming a public company represented a significant milestone, as it further empowered our team to drive our mission of inspiring everyone to love living consciously.” It is worth noting that international business currently accounts for low single-digit percentages for revenues, which leaves a long runway for growth. The Company is serving the ESG theme. He went on to highlight describe the Honest brand, “We’re a leading lifestyle brand and clean baby, beauty and personal care with top rankings across three key loyalty drivers in our product categories: better-for-you credibility, expressive brand personality and functional excellence. Our products have garnered strong ratings and reviews across categories with industry-leading NPS scores, while formulating according to our Honest standard and No List, avoiding over 2,500 chemicals and materials we chose not to use. Our brand promises to always strive to provide clean, sustainable, effective and thoughtfully designed products for our consumers.”

Clean and Natural Products

He pointed out that the clean and natural market is projected to grow in the high single digits through 2025 at 6X the rate of the conventional market. The Company also has 43 million social media followers. Sales are balanced between digital (55%) and 45% (retail) in 2020. The morning routine campaign was launched in Q1 2021 featuring Jessica Alba, “showcasing a variety of morning routines for the whole family, emphasizing the versatility of our personal care offering through multiple life stages.” This content underscores the personal care product line featuring its branded shampoo, body wash, conditioner, body basin lotion and conditioning to tangler. The campaign resulted in over 90 million impressions. The clean concept is underscored by its Clean Conscious Diaper is sustainably harvested with totally chlorine-free pulp and 100% plant-based backsheet packaged with 100% post-consumer recycled cardboard boxes.

HNST Opportunistic Pullback Levels

Using the rifle charts on the daily and 60-minute frames provides a precision view of the landscape for HNST stock.  Since the stock is a recent IPO, the wider time frame indicators are still materializing, thus we can use the materialized smaller time frames to gauge the price action. The daily rifle chart indicates a breakdown as shares are still going through price discovery. The daily rifle chart has a falling 5-period moving average (MA) at the $17.31 Fibonacci (fib) level. The daily lower Bollinger Bands sit near the $13.32 fib. The daily also formed a market structure low (MSL) buy trigger on a breakout above the $16.28 fib. The daily upper BBs sit at $20.78. The 60-minute rifle chart has a downtrend with a falling 5-period MA at $15.65 with lower BBs expanding at $15.10. Prudent investors can monitor for opportunistic pullback levels at the $14.76 fib, $14.01 fib, $13.72 fib, $13.32 fib, $12.59 fib, $12.04 fib, and the $11.36 fib. Upside trajectories range from the $19.68 fib up towards the $24.89 fib.