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July Competition Idea -- $RVLV
I'm going with Revolve Group for the Commonstock competition.
This thing is a consistent 20% compounder with expanding margins fetching an earnings multiple around 20X.
As a consumer discretionary e-commerce play, many are worried about how the next several quarters will look. To me, this is a special exception and will buck the negative trends analysts are currently assuming.
Here's why:
- The company caters to a highly affluent consumer far more durable to economic fragility than other cohorts. Its demand trends were exceedingly strong even into May 2022 as a result. Economic cracks had already begun to form and deepen by then.
- Yes it's an e-commerce player, but we have to explore exactly what type of e-commerce player it is. The firm sells clothing people wear to "look and feel their best." This takes the form of fancy dresses for a party or festival as a primary example. Social distancing greatly diminished demand for this nice, and it's now coming back with full force. Speaking of festivals, that's primarily where Revolve does its marketing. So these events returning is allowing it to normalize its customer acquisition cost and user growth.
- The team is nothing short of elite. I readily rip on executives of my own holdings for under-performing... this team hasn't given me the chance. Despite demand collapsing during the pandemic, it managed to stay exceptionally nimble with data-driven inventory which freed it to expand margins. It sees a lot of this expansion as permanent to now coincide with the demand growth tailwind.
- It shatters top & bottom line expectations every single quarter.
- Now, Kendall Jenner has been brought on to be the creative director of its FWRD brand. To me, that merely pours more gasoline on the momentum fire. She's 2nd to none in terms of fashion ubiquity. FWRD has taken more market share in its luxury niche since 2019 than any other competitor and is now becoming a larger and larger piece of the pie while continuing its rapid growth trajectory.
This is an e-commerce player, but a unique one. The pandemic was NOT good for this company, but it's lumped into that aggregate beneficiary bucket. I'm excited to see how Wall Street reacts to its 2022 results.
Go Revolve.
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