Does Recent IPO Hour Loop Deserve a Place in Your Portfolio?

Hour Loop, Inc. (HOUR) in Redmond, Wash., is an e-commerce retailer. It manages more than 100,000 stock-keeping units. In addition to its e-commerce website, HOUR has also been a third-party seller on…

Amazon.com, Inc. (AMZN) since 2013. HOUR’s primary business strategy is to bring most of its vendors’ product selections directly to customers.

The company made its stock market debut through a traditional initial public offering on the Nasdaq stock exchange on Jan. 11, 2022. It listed 1.50 million shares of common stock at $4 each, raising $6 million in gross proceeds. The stock opened at $6.55 on its first trading day, 63.8% higher than its pre-IPO price.

However, HOUR shares have declined 54.6% since their IPO to close yesterday’s trading session at $3.01.

Here is what could shape HOUR’s performance in the near term:

Business Expansion

HOUR has been using the net proceeds from the IPO to expand its labor force, purchase inventory and repay outstanding debt. Since its stock market debut, its total employees have increased 328.6% to 300, reflecting its commitment to strategic expansion and its scaling of business operations and capabilities.

Top 10 Stocks for 2022

On February 23, HOUR opened three new offices in Taipei, Taichung, and Taiwan as part of its strategy to expand its operational capabilities across geographies to drive long-term growth.

Mixed Earnings Growth Prospects

Analysts expect HOUR’s revenues to rise 60% year-over-year to $100.44 million in its fiscal year 2022 (ending December). Furthermore, the Street expects the company’s revenues to improve 50% from the same period last year to $150.66 million next year.

However, the $0.13 consensus EPS estimate for the current year indicates a 7.1% decline year-over-year. Nevertheless, HOUR’s EPS is expected to improve 169.2% year-over-year to $0.35 in 2023.

Stretched Valuation

In terms of non-GAAP forward P/E, HOUR is currently trading at 23.15x, which is 89% higher than the 12.25x industry average Its 0.84 trailing-12-month PEG multiple is 625.9% higher than the 0.12 industry average, while its 19.49 trailing-12-month EV/EBITDA ratio  is 111.2% higher than the 9.23 industry average.

In addition, the stock is currently trading 1.05 times its forward sales, which is 14.8% higher than the 0.91 industry average. Also, its trailing-12-month Price/Cash Flow and Price/Book multiples of 13.58 and 37.76, respectively,  compare with the 10.22 and 2.30 respective industry averages.

POWR Ratings Reflect Uncertainty

HOUR has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

HOUR has a C grade for Momentum and Growth. The stock is currently trading above its 50-day moving average of $2.97 but below its 200-day moving average of $3.41, which is in sync with the Momentum grade. In addition, HOUR’s trailing-12-month revenues rose 62.4% year-over-year, while its total assets declined  26.4% over this period, justifying the Growth grade.

Among  the 71 stocks in the F-rated Internet industry, HOUR is ranked #8.

Beyond what I have stated above, view HOUR ratings for Sentiment, Stability, Value, and Quality here.

Bottom Line

HOUR has been losing momentum since its stock market debut because…

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