Shares of Beauty Health Co. (SKIN) have plummeted by 30% following the release of quarterly results on May 9. Despite a decline in net sales for Q1 to $81.4 million, which was better than expected, the company reported $400,000 in adjusted Ebitda, surpassing analyst predictions of a loss of $7.6 million. The decrease in revenue was attributed to customer caution over the Syndeo 3.0 delivery system and higher interest rates. However, steady growth in consumables sales across all regions helped offset some of the losses.
The main reason for the stock’s weakness seems to be ongoing technical issues with the Syndeo 3.0 system, which was released 11 months ago after a significant investment by the company. These problems, including noise, inconsistent flow, and cosmetic issues, are currently being addressed by customer service teams. Despite these setbacks, SKIN provided a softer outlook for the future, with projected net sales falling short of expectations at $96 million to $102 million. Adjusted Ebitda is also forecasted to be lower than expected at $4 million to $7 million.
SKIN remains optimistic about the future, as the current technical issues seem manageable and require minimal resources to resolve. The company expects to return to sequential top-line growth and a significant increase in adjusted Ebitda. With strong demand for consumables and cost-saving measures in place, SKIN aims to achieve flat to low-single-digit sales growth and generate over $40 million in adjusted Ebitda for the full year. Its business transformation program is aimed at reducing costs and enhancing operational efficiency.
Despite burning through $18.7 million in free cash in Q1, SKIN’s net debt position has improved by approximately $13 million this year. The company has been able to repurchase a significant portion of its convertible notes at a discount, indicating potential improvement in its balance sheet. If SKIN can meet its targets and continue to strengthen its financial position, the stock is expected to recover from its recent decline. Beauty Health Co. (SKIN) is one of the stocks recommended in the Forbes Investor newsletter, which aims to identify undervalued gems with significant upside potential.
Julius Juenemann, CFA, the equity analyst and associate editor of Forbes Special Situation Survey and Forbes Investor newsletters, highlights SKIN as a current recommendation in the Forbes Investor. He predicts a solid year-over-year sales growth of at least 12% and a substantial increase in adjusted Ebitda in the second half of the year for SKIN. By following his recommendations and tracking the progress of SKIN as it addresses its technical issues and implements cost-saving measures, investors can gain insight into the potential future success of the company and its stock performance.
