Buying ODDITY

I recently added a full review on ODDITY, an online-only, technology-based developer and retailer of cosmetics and beauty brands. At the time, the stock was trading at a pretty good discount to our fair value calculation, but not quite to the 25% discount we like to see before buying.

After reviewing the firm's Q2 report, and taking into account the several percentage point decline in the stock price since our review, now looks like a great time to jump in. ODDITY enters the Buy List today at its Friday close price!

Q2 results show that the firm continues to execute well. Sales were up 27.4%, gross margin expanded by 160 basis points, and free cash flow margin for the past 12 months came in at over 18% - an excellent number for this industry (low teens is more the norm). The growth potential remains huge, as this is a multi-hundred billion dollar market that is under-penetrated by online sales. ODDITY is targeting $1 billion in annual sales, ultimately, for each of its two existing brands, Il Makiage and SpoiledChild, and is developing 2 additional brands to boot.

We also see management taking advantage of what looks like an under-valued stock, buying back 250k shares in the quarter, with plenty left on a $150 million authorization. To see this in an early-stage growth firm is a delight - usually these guys are struggling just to fund the business. Not this one.

After reviewing the quarter, I'm raising the fair value price a bit to $53. That puts ODDITY at a margin-of-safety well over the 25% threshold. I'm excited to add it to our collection of fantastic companies!