Shares of footwear company Allbirds (BIRD -7.02%) fell 18% in January, according to data from S&P Global Market Intelligence. The brand, focused on sustainability and comfort, is growing rapidly, but investors haven't been impressed with it enough to give it a boost. Its relatively new stock floundered on its earnings report at the end of November, and negative investors sentiment carried the stock lower as the market remained volatile in January.
Allbirds only joined the market in early November, so it's still fresh out of the oven. The third-quarter report at the end of the month marked its first as a public company, and it demonstrated a small, growing, unprofitable company. Unfortunately, the market isn't so hot on small, unprofitable growth stocks these days.
Allbirds claims it is a "global lifestyle brand that innovates with naturally derived materials to make better footwear and apparel products in a better way." Customers are liking the product enough, and sales rose 33% year over year in the third quarter to $62.7 million. Gross profit and margin increased as well, and Allbirds is moving along a typical new company trajectory. A net loss of $13.8 million was just almost double $7 million last year, as the company expanded with new stores and products. With four stores opened in the third quarter, it still comes to a tiny total of 31.
The stock received an initial boost in early January on an overweight rating from an analyst at Morgan Stanley, but it quickly receded as the rating came down from a $23 price target to $17.
Allbirds made its IPO debut at $15, and it now trades below that. Despite its low price, shares trade at an expensive price-to-sales ratio of 6.3. It doesn't look as if it will become profitable in the near future.
The company is just getting started, with a huge opportunity for its niche products. It has successfully launched a clothing collection dedicated to its mission of sustainability and comfort, and management says it's working on a large assortment of new products. It faces headwinds with supply chain disruptions, but it says the company is managing through them well, and it's benefiting from tailwinds of a shift toward casual wear and athleisure.
Sales are likely to continue growing at a brisk clip, and the stock price should match that. This could turn into a market-beating stock, but it's too early to say, so buying shares comes with no small amount of risk.