As long as discretionary income remains under pressure, there’s a path for POSH
Poshmark (NASDAQ:POSH) reported mixed fourth-quarter and full-year 2021 earnings on Mar. 22. However, after POSH stock dropped in after-hours and pre-market trading, the stock was staging a rally the morning after earnings.
On the positive side, the company posted $84.2 million in revenue which beat expectations. However, the company missed its earnings per share (EPS) forecast by a penny. Poshmark reported negative EPS of 19 cents.
Since the report, six analysts lowered their price targets for POSH stock. The rationale is the softer than expected guidance for the upcoming quarter. However, the company also saw its price target raised to $12 from $10 by Roxanne Meyer of MKM Partners. And despite the negative sentiment, the consensus price target for POSH stock is $19.20, which is a 37% upside from the stock’s current price.
This is an earnings season when it doesn’t take much to disappoint analysts. However, if POSH stock can maintain this recovery, it should continue to draw the interest of institutional investors. That combined with the company’s business model are reasons that Poshmark should remain on your watchlist.
Guidance wasn’t all that bad
Poshmark issued first-quarter revenue guidance between $86 million and $88 million. Analysts were hoping for $88.1 million. Furthermore, the company issued guidance for adjusted EBITDA between negative $7 million to a negative $9 million. Analysts were forecasting a loss of $7.8 billion.
A concern for the stock is margin which analysts don’t foresee having much room to expand. Analysts also see the company’s increased marketing spend as a drag on earnings. I’m also aware that the company remains concerned about the possibility for consumer spending to remain disrupted, particularly in the first quarter.
However, the company’s asset-light business model is likely to remain popular as consumers look for ways to manage the effects of inflation on their discretionary income.
A hedge against inflation
Poshmark is an online consignment marketplace for high-end fashion items. The driver for revenue comes from the fees the company charges sellers who post items on the company’s site. The company touts itself as "a style destination where shoppers come to discover, follow and shop for fashion."
The company’s business model also positions the company squarely within the three shopping trends that are emerging in a post-pandemic economy. First, more consumers are buying online. Second, consumers are relying on the opinion of social media/influencers in their buying decisions. And third, consumers are embracing the purchase of second-hand merchandise.
And that last trend is likely to continue as a dominant concern in 2022. The Federal Reserve recently took a more hawkish posture about inflation. Fed chair Jerome Powell said that more interest rate hikes are a near certainty. And Powell also hinted that a more aggressive 50-basis point increase was not off the table.
As an investor, it’s important to be agnostic emotionally about any of these pronouncements. The rational conclusion is that many Americans will be looking for ways to make their discretionary dollars stretch farther and Poshmark is a way for them to do just that.
POSH stock should stay on your watchlist
Right now, short interest in POSH stock remains high. And from a technical standpoint, the stock remains below both is 50- and 200-day simple moving averages at the time of this writing. On the other hand, the stock doesn’t appear to be overvalued and its presenting a neutral price in terms of the relative strength indicator (RSI).
I would wait for more clarity before taking a significant position in POSH stock. However, with interest rates expected to rise, Poshmark may be in a position to surprise to the upside. If it does, analyst sentiment may change quickly.