The Honest Company’s IPO Is Coming Soon, and Its Stock Looks Promising

The Honest Company has priced its IPO, and is expected to list on May 5.  The California-based consumer goods company, which was co-founded by actress Jessica Alba in 2011, has seen revenue jump 28 percent in 2020 due to the strong demand for baby products, lotions, and sanitizers. The stock is set to debut on the Nasdaq under the ticker symbol “HNST.” Is Honest’s IPO stock a good buy for investors? What can investors expect after the IPO?

The decision to list its shares comes as the Honest Company plans to boost its online business, while expanding its footprint at third-party retailers and in international markets, particularly the lucrative Asian region. The company plans to raise $413 million in the offering.

The Honest Company is expected to start trading on May 5. The company is offering 25.8 million shares in the IPO, at $16 each. Previously, the company was planning to offer shares for $14–$17. The offering is expected to close on May 7.

The net proceeds from the offering will be used for general corporate purposes, including working capital, operating expenses, and capital expenditures for future growth. Morgan Stanley, Jefferies, BofA Securities, J.P. Morgan, Citigroup, William Blair, and Guggenheim Securities are the listed underwriters for the offering.

The Honest Company isn't profitable yet. The company has incurred net losses every year since its inception, and it might not be able to achieve or maintain profitability as its costs will rise significantly in the foreseeable future. Honest reported a net loss of $14.5 million in 2020 compared to $31.1 million in 2019. As of December 2020, the company had $101.2 million in total liabilities and $29.3 million in cash.

However, investors may see an upside as the company scales up. The Honest Company is known as much for its famous founder as for boasting that all its products—which include baby, skin, and household supplies—are non-toxic. 

Honest could seek an IPO valuation of about $1.6 billion, according to Renaissance Capital. The company faces competition from Johnson & Johnson, Procter & Gamble, and Unilever, which have market capitalizations of $442 billion, $329 billion, and $151 billion, respectively.

The Honest Company IPO stock looks like a good buy based on valuations and growth. The company’s financials show robust revenue and gross profit growth as well as reduced net losses. In 2020, Honest’s revenue rose by 27.6 percent YoY to $300.5 million. In 2020, the company generated 55 percent of its revenue from its digital channel, which has witnessed gains amid the COVID-19 pandemic as shoppers turned away from physical stores.

Honest has also formed strategic relationships with Costco, Amazon, and Target. The company’s products can be found in about 32,000 retail locations across the U.S., Europe, and Canada. Honest’s largest shareholders are L Catterton’s global co-CEOs Scott Dahnke and Michael Chu.

Retail investors will be able to buy The Honest Company stock through their online or traditional brokerage once the IPO is official. To find the stock and buy it, search for Honest stock using the ticker symbol or company name.