Shares of technology-enhanced cosmetics platform Oddity Tech (ODD 1.48%) soared on Friday after the company raised its guidance for the second quarter of 2024 and announced a stock buyback program. As of 2:40 p.m. ET, Oddity Tech stock was up a whopping 22%.
Here's why investors are cheering
Oddity Tech is an Israeli company that had its initial public offering (IPO) less than one year ago. It's put up strong growth numbers and had guided for up to $189 million in Q2 revenue, which would represent 25% year-over-year growth. However, today management clarified that it fully expects to hit this number, tossing out the lower possibilities in its previous guidance.
NASDAQ: ODD
Key Data Points
Moreover, Oddity Tech had guided for Q2 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $56 million, at best. Now it expects $60 million.
Perhaps because the business is doing so well, Oddity Tech's management feels like now is a good time to do a stock buyback program. It's authorized to use $150 million at its discretion, which is a large amount for a small-cap stock.
Be cautious with newly public companies
I'm not trying to be sound alarmist, but the timing of this announcement from Oddity Tech is noteworthy. Just weeks ago, a short-seller accused the company of various things, including operating undisclosed brick-and-mortar stores in Israel and overstating the capabilities of its artificial intelligence (AI) software.
In its rebuttal, Oddity Tech admitted to the retail stores but called them immaterial to financial results at less than 5% of revenue.
Updating its Q2 guidance mid-quarter could be a move from Oddity Tech's management to restore any lost confidence. But regarding the stock buyback, I'm always a little skeptical when an IPO company does this. After all, it just raised money by selling shares on the market. Now less than a year later, it's doing the opposite by using money to buy some of these back.
IPO stocks need time to establish track records of credibility. This is why many advisors might recommend waiting a couple of years before investing in IPO companies -- give them time to establish their trustworthiness. In this case, there seem to be many attractive qualities to Oddity Tech but also some legitimate questions. Therefore, it might be best to give it more time before putting investment dollars on the line.
