Analysts at Bank of America (BoA) have initiated coverage of health and wellness-focused technology company Oddity Tech with a ‘Neutral’ rating and a $60 price target.
In a note to clients, the BoA analysts highlighted that Oddity uses its proprietary machine learning algorithms and AI-backed technology to develop high-quality, science-backed products and deliver product recommendations.
“We see opportunity for ODD to use these capabilities to capture share from legacy players,” they wrote.
They highlighted that, while legacy brands operate largely in person with wholesale partners (meaning that they do not collect most of their consumer data), Oddity’s foundation is its in-house tech with more than 40% of its workforce being technologists.
“Its algorithms collect 50 plus data points per user and offer precise product matching and recommendations,” they wrote.
“Its biotech unit Oddity Labs is an innovation engine for AI-backed molecule development, elevating the science-based offerings.”
The BoA analysts also noted the rapid growth and strength of Oddity’s existing brands but pointed out that the company won’t debut its next two brands until 2025.
Risks to the stock include competition from established beauty and wellness brands and its lack of a physical presence, according to the analysts.
“Loyalty to beauty and skin products can be quite strong which may present challenges for an emerging company,” they wrote.
“The lack of physical stores may make it difficult for ODD to garner brand recognition and gain traction with in-person shoppers.”
The analysts also noted that Oddity stock’s strong performance, having added more than 50% since its initial public offering (IPO) on August 18, 2023, means that its valuation versus traditional beauty brands leaves less room for multiple expansion.
On their $60 price target, the analysts wrote that the stock’s premium to larger beauty companies – Estee Lauder Companies Inc (NYSE:EL), L'Oréal, and Coty Inc (NYSE:COTY) – and discount to e.l.f. Beauty, Inc. (NYSE:ELF) was appropriate.
“Our $60 PO is based on 24x 2024 estimate enterprise value (EV)/earnings before interest, taxes, depreciation, and amortization (EBITDA), in line with the average of EL and ELF,” they wrote.
“We think that's warranted given ODD's stronger growth profile than EL and lower sales growth and EBITDA margin versus ELF.”
Oddity shares traded at $46.54 on Monday afternoon.
Contact the author at emily.jarvie@proactiveinvestors.com
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