Shares of "environmentally friendly" footwear maker Allbirds (BIRD 1.77%) jumped a huge 19% at the open on Jan. 6. That didn't hold for long, though, with the stock up just 4% an hour or so into the session. The news driving the seesaw action was an analyst upgrade, and both the swift jump and the subsequent pullback make sense when you dig into what was said.
Allbirds is a relatively young company, holding its initial public offering (IPO) in early November last year with a $15-per-share price. Pitched as a lifestyle brand using naturally derived materials, the shoe retailer's stock took flight, initially jumping to a high of more than $32 per share. That didn't last long, however, and steady declines since that peak have left the stock trading below its IPO price. This background is important because Morgan Stanley just announced that it upgraded Allbirds from equal weight to overweight, partly due to the stock price having fallen so much.
The key here is that Allbirds is small, but growing its business at a rapid clip. For example, third-quarter 2021 sales increased an incredible 33% year over year. That's what led Morgan Stanley to a price target of $17 per share. However, that's actually down from a previous target of $23, which isn't such positive news. So the real story seems more like a huge price drop has made fast-growing Allbirds more attractive, but its business really isn't quite as good as we used to think it was. No wonder investors swooped in on the news and then got less excited once they digested it.
Allbirds is a small, fast-growing shoe retailer with a hip brand. It's losing money today as it works to grow its store footprint, which isn't shocking. In fact, it currently has just 31 locations, so growth should be pretty easy to achieve simply by adding more stores. The key next step, though, is for Allbirds to turn a profit, and it looks like Wall Street isn't satisfied with the swift top-line growth coupled with red ink on the bottom line. Although investors reacted as you would expect to an analyst upgrade, pushing the stock higher, the short-lived jump suggests that they are increasingly looking for more from Allbirds.