What Happened?
Shares of secondhand luxury marketplace The RealReal (NASDAQ: REAL) jumped 7% in the afternoon session after B. Riley Securities initiated coverage on the company with a "Buy" rating.
The investment firm set a price target of $8.00, suggesting a significant potential upside from the stock's current price. B. Riley's positive outlook is based on The RealReal's substantial improvements in profit margins, which have expanded by about 12 percentage points since the first quarter of 2023. This growth is attributed to changes in the company's commission structure and a strategic shift away from direct buying. The analyst also highlighted the company's achievement of positive adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for three straight quarters, expecting further improvement as The RealReal capitalizes on its platform investments. The firm views The RealReal's supply chain, which primarily consists of domestic pre-owned goods, as a key advantage, especially as competitors face cost disruptions from tariffs.
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What Is The Market Telling Us
The RealReal’s shares are extremely volatile and have had 67 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 7 months ago when the stock gained 39.4% on the news that 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. The key factors that drove the change included higher profit margins from a revamped consignment fee structure and less dependence on low-margin direct sales. The analyst felt the recent debt overhaul also lowered financial risks, setting the stage for the company to generate positive free cash flow by 2025.
The RealReal is down 42.6% since the beginning of the year, and at $5.65 per share, it is trading 49.5% below its 52-week high of $11.18 from December 2024. Investors who bought $1,000 worth of The RealReal’s shares 5 years ago would now be looking at an investment worth $415.38.
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