In early May, the Honest Company (Nasdaq: HNST) went public and opened at $21.22 above its pre-IPO price of $16. However, since then shares are down by about 25% and are close to its pre-IPO price point. Honest sells consumer goods that are known for being organic and environmentally friendly. The company was founded by Jessica Alba who continues to hold a substantial stake.
In its IPO, the company was able to raise $413 million by selling 25.8 million shares. Currently, Honest has a valuation of $1.5 billion and $310 million in sales over the last 12 months. Some of its most well-known investors are Lightspeed, Fidelity, and General Catalyst. Some of its highest-selling products are diapers, nursing pillows, vitamins, and non-toxic household products. Most items are sold through their website and at stores like Costco (NYSE: COST) and Target (NYSE: TGT).
Company Profile
Alba was inspired to start Honest, following the birth of her daughter in 2008. Due to her sensitivities, she wanted to find baby products that didn't contain chemicals or synthetic fragrances. She launched the company in 2012 with 17 products, eschewing the recommendation of many to start small. The company has consistently grown from $50 million in sales in 2013 to its current size.
Honest been able to ride multiple trends including people willing to spend and pay more to buy high-quality, sustainable items. Further, it's also been successful in building out its own direct to consumer, digital sales channel. In 2020, Honest's revenues exceeded $300 million, growing by 28% from 2019. Skin and personal care categories were among the fastest gainers with a 34% increase. This is despite most companies' sales of these items dropping amid the pandemic. The company's main focus is on winning more space on store shelves as it currently is in 32,000 retailers. The company wants to go more downstream by being on shelves of grocery stores and pharmacies.
Stock Price Outlook
Honest is really interesting as it's a company that should be able to command significant pricing power given that many buyers of these types of products are less price-sensitive. Further, the company has done an exceptional job in cultivating trust among its customers.
From a financial perspective, Honest is valued at $1.4 billion, yet it's raised nearly $500 million. This category of ethical and premium products is certainly going to grow, and Honest is an early leader. Therefore, investors should consider accumulating a stake in the company.