Warby Parker: Is it a better stock than EssilorLuxottica?

Warby Parker (WRBY) stock price has underperformed the market since going public through a direct listing in September 2021. It has barely moved since 2022, and it remains 73% below its highest level on record. This performance has brought its market valuation from over $3 billion to about $1.8 billion.

In contrast, EssilorLuxottica (EL) stock has soared to a record high of 218 euros, bringing its market cap to over $100 billion. It has jumped by more than 165% from its lowest point in 2020, making it one of the best-performing companies in France.

Warby Parker’s business is doing well

Warby Parker is a leading company in the eyeglasses market. Started in 2010 as an online-only glass company, it went public in 2021 and has expanded its business to retail stores in the US and Canada.

Warby Parker’s business model is relatively simple. Instead of selling glasses for hundreds of dollars, the company sells most of its eyeglasses and sunglasses for $95. 

In the past few years, however, it has introduced more pricey sunglasses, with the most expensive ones selling for $195. These more expensive glasses are doing relatively well, and are bringing in more margins.

Warby Parker’s glasses are of a high quality, and even the most expensive ones, cost much less than those made by its competitors. For example, a quick look at the Sunglass Hut website shows that the most popular sunglasses cost over $300.

Warby Parker’s quality and pricing has seen its revenues do well over time. Its annual revenue rose from $370 million in 2019 to over $670 million in the last financial year. Its trailing twelve months revenue rose to $720 million. 

Warby’s customers have also jumped sharply in the past few years. Data shows that the company sold its glasses to 1.78 million customers in 2019, a figure that grew to 2.33 million in 2023, meaning that the momentum will continue.

This growth is mostly because of its hybrid business model of combining its online platform with its 256 stores. These stores eliminate the fear that most people have when buying its products online.

Revenue is growing, no debt

The most recent results showed that Warby Parker’s revenue grew by 13.3% in the second quarter as its average revenue per customer jumped to $302. 

Analysts expect that its revenue growth continued in the third quarter, with the figure expected to grow by 15.40% to $190 million. For the year, its revenue is expected to be $761 million, a 13.70% increase from 2023. The figure will hit $860 million in 2025, and possibly $1 billion in the following year. 

Most importantly, Warby Parker has been narrowing its losses in the past few years. Its net loss stood at $144 million in 2021, and dropped to $110 million and $63 million in 2022 and 2023, respectively. Analysts expect that the company will become net profitable by either 2024 or 2025. It also has zero debt.

Most analysts tracking the company have a bullish outlook, with the most notable ones being JMP Securities, who upgraded it to market outperform. Stifel, Loop Capital, and UBS have a neutral outlook for the stock. 

Warby Parker stock has bottomed

On the daily chart above, we see that the Warby Parker stock price has moved sideways in the past few years as it bottomed at $9.96. It has remained at the 50-day and 100-day Exponential Moving Averages (EMA), while the Average True Range (ATR) has retreated. 

Therefore, I believe that Warby Parker’s business is highly undervalued, and that the stock will likely bounce back in the long term. If this happens, the next point to watch will be at $18.78, its highest level in December 2022.

EssilorLuxottica’s business has slowed

EssilorLuxottica, the biggest business on the other hand, is doing well even as its revenue growth has eased. Its revenue rose by 5.3% in the first half of the year to 13.2 billion euros, while its net profit was 1.76 billion.

EssilorLuxottica’s growth was likely because of its acquisitions. Some of its recent acquisitions were Optical Investment Group, a leading player in Romania, and Supreme from VF Corporation.

Still, we believe that Warby Parker is a better investment than EssilorLuxottica at these levels. It is growing at a faster rate, has zero debt, and has room to expand its business in the United States and Europe. 

Warby Parker is also relatively cheaper than EssilorLuxottica. It has a price-to-sales ratio of 2.0x compared to EssilorLuxottica’s 3.6.

A good example of what is happening here is the automaker industry, where Tesla has disrupted the sector and become the biggest player in the sector. It has done much better than companies like Toyota, Volkswagen, and BMW.

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