Warby Parker trades at $25.91 per share and has stayed right on track with the overall market, gaining 11.2% over the last six months. At the same time, the S&P 500 has returned 12.9%.
Is now the time to buy Warby Parker, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Warby Parker Not Exciting?
We’re cautious about Warby Parker. Here are three reasons we avoid WRBY, plus one stock we’d rather own.
1. Fewer Distribution Channels Limit Its Ceiling
With $911.6 million in revenue over the past 12 months, Warby Parker is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.
2. Breakeven Operating Margin Raises Questions
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Warby Parker was roughly breakeven when averaging the last two years of quarterly operating profits, one of the worst outcomes in the consumer retail sector. This result is surprising given its high gross margin as a starting point.
3. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Warby Parker’s four-year average ROIC was negative 33.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer retail sector.
Final Judgment
Warby Parker isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 53.6× forward P/E (or $25.91 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at the most dominant software business in the world.
Stocks We Like More Than Warby Parker
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