Yatsen Holding
Yatsen Holding
YSG
$1.28
7.15%
46%
IBD Stock Analysis
- Nears IPO base with 21.10 buy point
- Sales growth strong, but losses set to continue
Industry Group Ranking
Emerging Pattern
IPO Base
* Not real-time data. All data shown was captured at
1:25PM EST on
01/12/2021.
Yatsen Holding (YSG), a company that sells beauty and skin care products in China, is the IBD Stock of the Day. Yatsen stock is forming a base and has rapidly grown sales over recent years, even as profits remain inconsistent.
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Much of that growth, the company and some analysts argue, has come from its digitally oriented business that sells products to consumers directly. That sales model, Yatsen said, is new to China’s beauty market and more attractive to the nation’s younger customers.
Yatsen Stock
Yatsen stock is building the right side of an IPO base. The buy point is currently 21.10, according to MarketSmith analysis. That’s 10 cents above the high YSG stock reached on Nov. 20, its second day of trading. Shares fell through December and began rebounding this month. It’s possible that Yatsen stock will form a handle, with a lower entry.
Shares rose 7.2% to 19.17 in the stock market today. YSG stock ratings are weak. Yatsen stock has a 13 Composite Rating. Its EPS Rating, which gauges profit growth, is 6.
The company’s sales have boomed since its founding in 2016. Total net sales for the first nine months of last year came in at $481.9 million, a 73% jump from that period in 2019, the company said in its preliminary IPO prospectus. In 2019, net sales spiked 377% from a year earlier to $446.4 million.
Yatsen lost $170.4 million during the first nine months of last year. In 2019, the cosmetics company was profitable, with net income of $11.1 million. But it lost money in 2018.
Analysts expect losses to continue through at least 2021.
However, a number of Fidelity funds own Yatsen stock, a positive sign.
Analysts See Gains For Yatsen Stock
Yatsen said that customers in China have gravitated to online shopping hubs like Small, JD.com (JD) and Vipshop (VIPS) for beauty products. Social media, more recently, has played a bigger role in helping customers discover new cosmetics, Yatsen said.
Manufacturers and packaging supply partners in the nation’s beauty market, meanwhile, are building out resources. Younger consumers, Yatsen said, prefer personalized products.
“As a result,” Yatsen said, “we saw a significant opportunity to create a disruptive beauty brand, re-imagined from the ground up, that partners with these marketing channels and supply chain players in a more integrated and unique way and provides young consumers with a superior experience and an engaging new journey of beauty discovery.”
As of Sept. 30, Yatsen also had more than 200 stores across more than 90 cities in China. Those stores, it said, boost customer engagement by giving them “a physical space to sample our products and engage with our brands.”
Driven By Social Media
Goldman Sachs analysts, however, said that online beauty sales in China rely in large part on social media.
“A key driver behind the rapid online beauty sales will be the rise of social e-commerce which integrates social platforms with e-commerce capabilities, such as WeChat, TikTok, Bilibili and Kuaishou, in our view,” Goldman Sachs analyst Christine Cho said in a research note last month.
The company’s flagship brand is Perfect Diary, a color cosmetics line. Yatsen also sells the eyeliner and mascara brand Little Ondine and moisturizing-mask maker Abby’s Choice.
However, Goldman warned that marketing spending could remain high, weighing on profitability for Yatsen stock.
The coronavirus pandemic temporarily closed stores and dampened sales in early 2020 — even as the top line kept growing.
“Due to the overall weakening consumer sentiment and purchasing activities as a result of the impact of COVID-19, our sales volume and total net revenues experienced slower-than-expected growth in the nine months ended September 30, 2020,” Yatsen’s IPO prospectus said.
“Our online sales volume witnessed slower-than-expected growth in the first quarter of 2020 due to the unavailability of, or significant delays in, delivery services during such period,” it continued.
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