What happened
Shares of The Beauty Health Company (SKIN 5.88%), which specializes in facial treatments, dropped on Wednesday after an analyst downgraded his rating for the stock. As of 10:10 a.m. ET, Beauty Health stock was down 12% and had touched all-time lows.
So what
Stifel (NYSE:SF) analyst Jonathan Block downgraded his rating for Beauty Health stock, according to Street Insider. Previously, Block called Beauty Health stock a buy. Now he rates it as a hold. But he maintained his price target of $10 per share, according to TipRanks.
He is reportedly concerned about slowing growth for the company. And to his point, the growth rate has dropped rapidly, as the chart below illustrates.
SKIN revenue (quarterly YoY growth); data by YCharts. YoY = year over year.
The stock isn't followed by too many analysts. So losing Block's buy rating is spooking investors today.
Now what
Beauty Health generates revenue from sales of its flagship Hydrafacial machines to dermatologists and cosmeticians. And it continues to generate revenue by selling the products used in the cleansing and hydrating facial treatments. In the first quarter of 2023, revenue was only up 14% year over year. However, management expects growth to pick back up.
For 2023, Beauty Health expects to generate revenue of $460 million to $480 million, which at the midpoint would represent 28% growth from 2022.
Moreover, management is targeting full-year revenue of $600 million to $700 million for 2025. Assuming it hits the midpoint of its guidance this year, its 2025 guidance assumes a 13% to 22% annual growth rate, which is potentially better than its slower growth in the first quarter.
Considering this healthcare stock didn't change any of its guidance, I would say the market is overreacting to Block's downgrade of Beauty Health stock today.
