U.K.-based fashion product retailer Farfetch (FTCH) bills itself as the number one global online luxury platform. That’s a big claim to make – but Farfetch has the numbers to back it up.
Farfetch’s skeptics might acknowledge the shift towards e-commerce in the wake of the Covid-19 pandemic, while questioning whether high-end goods could be strong sellers during times of financial distress.
That’s certainly a legitimate concern. On top of that, bearish-leaning investors might wonder how Farfetch is evolving its e-commerce platform to meet the needs of its brands and customers.
Tough questions require direct answers – but after a blockbuster quarter for this Internet commerce leader, the bull thesis might not seem too far-fetched. (See Farfetch stock analysis on TipRanks)
A Quick Look at FTCH Stock
There are a few red flags concerning FTCH stock.
First of all, the stock has a five-year monthly beta of 3.31. This means FTCH stock has historically tended to move three times as fast as the S&P 500.
Additionally, FTCH has a wide range, indicating a lot of movement. The stock's 52-week range is $14.07 to $73.87.
In other words, this is a highly volatile stock, so investors would be wise to keep their position sizes moderate.
Another red flag is that Farfetch has trailing 12-month earnings per share (EPS) of -$9.77. That’s a number that the stockholders will definitely want to see turn positive in the near future.
On the other hand, that figure measures the past year; the data looks much better when viewed in a shorter time frame.
Swinging to Profitability
The aforementioned negative EPS conceals an important fact: Farfetch made an abrupt but encouraging turnaround to profitability this year.
That’s right: after operating at a loss, Farfetch crashed the bear party by posting a profitable first quarter of 2021.
Farfetch Founder, Chairman, and CEO José Neves pointed out that the global luxury industry is worth nearly $300 billion – and made it crystal clear that his company is poised to increase its presence in this lucrative market.
The results are in, and they’re undeniable. For Q1 2021, Farfetch reported $485 million in revenue, representing a whopping 46% year-over-year increase. Clearly, shoppers are ready and able to prioritize luxury during the global economic recovery. Impressively, Farfetch’s quarterly gross merchandize value (GMV) grew 50% year-over-year to $916 million.
And here’s the coup de grace: Farfetch’s first-quarter profit after tax of $517 million signaled not just profitability, but a comeback narrative that’s undeniable.
Fetching a Bargain
FTCH stock is nowhere near its 52-week high of $73.87. Does this mean that the company is actually in trouble? Not necessarily. Sure, Farfetch is a profitable business now, but it could take some time before the market appreciates this and prices it into the stock.
Sometimes markets get mired in the past – but that’s not necessarily a bad thing, as it can create a prime buying opportunity.
While some investors are busy fretting about Farfetch’s less profitable quarters, forward-looking traders can capitalize on the mismatch between the share price and the company’s true value.
Also, some investors are still rattled from the Archegos Capital blow-up. Earlier this year, Archegos held a large stake in FTCH and other stocks, but had to unwind its over-leveraged positions by selling off huge amounts of its holdings – including Farfetch shares. Largely as a result of the Archegos saga, the FTCH stock price declined by roughly 50% in less than two months’ time.
That’s not Farfetch’s fault, yet the investing community decided to punish the stock nonetheless. In time, the market could come to its senses and reward the loyal shareholders with outsized returns.
Wall Street Weighs In
According to TipRanks’ analyst rating consensus, FTCH is a Strong Buy, based on 6 Buy and 2 Hold ratings. The average analyst FTCH price target is $60.63, implying 27.62% upside potential.
It won’t happen overnight, but the dust will settle and traders will likely eventually acknowledge Farfetch’s fast-improving financials.
When that happens, the FTCH stock price should rebound – and investors will have the luxury of harvesting their gains.
Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.