What Happened?
Shares of secondhand luxury marketplace The RealReal (NASDAQ: REAL) jumped 39.4% in the morning session after a Wells Fargo analyst upgraded the stock's rating from Equal Weight (Hold) to Overweight (Buy) and bumped the price target from $4 to $15. The analyst credited the upgrade to the company's improved focus on profits under new leadership. Key factors driving the change included higher profit margins from a revamped consignment fee structure and less dependence on low-margin direct sales. The analyst thinks the recent debt overhaul also lowered financial risks, setting the stage for the company to generate positive free cash flow by 2025.
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What The Market Is Telling Us
The RealReal’s shares are extremely volatile and have had 52 moves greater than 5% over the last year. But moves this big are rare even for The RealReal and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 9 months ago when the stock gained 37.2% on the news that the company reported strong fourth-quarter results that beat analysts' revenue expectations. The company delivered positive EBITDA for the first time as it focused on its consignment business, a strategic shift it enacted in 2023. Its average order value was 10% larger than in the same quarter last year thanks to higher prices for its products.
On the other hand, volumes declined by 17%. Furthermore, its number of active buyers fell.
Looking ahead, its revenue and EBITDA guidance for the full year 2024 topped Wall Street's projections.
Overall, this was a decent quarter, with the promising guidance likely providing more reason for investors to stay positive.
Additionally, there is a decent short interest of over 10% on the stock, which means that some investors are betting against the company. Short covering--those betting against it getting out of those positions following good results--may be magnifying the stock price move today.
The RealReal is up 349% since the beginning of the year, and at $8.84 per share, has set a new 52-week high. Investors who bought $1,000 worth of The RealReal’s shares 5 years ago would now be looking at an investment worth $506.01.
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