How to trade on The Honest Company’s IPO

Honest Co is expected to float its shares on 5 May 2021 on the NASDAQ exchange under the ticker or stock symbol ‘HNST’. IPOs don’t usually go live at the start of the trading session as the exchange needs to undertake a price discovery phase to calculate the opening price. Therefore, look out for Honest Co’s IPO going live a couple of hours into the US trading session on the day.

The company will be offering approximately 25.8m shares that will be priced between $14 and $17 per share. The total amount that it is expecting to raise could be over $430m, giving the company an overall market cap of $1.5bn. Honest Co is planning to use the capital raised to pay for marketing and corporate expenses.

In the SEC report that Honest Co submitted upon announcing its plans to IPO, the company states that revenue jumped by about 28% to $300m at the end of 2020. In particular, its skin and personal care category grew by about 36%, suggesting an increasing demand for ethically sourced beauty products. The company had a net loss for the year of around $14.5m.

The Honest Company’s upcoming IPO may appeal to investors for the following reasons:

The Honest Company has faced a number of public backlashes. Firstly, the business was valued at $1.7bn in 2016, when the discussion of an IPO first came around. It has since decreased to $1.5bn as of 2021, which may suggest that the value of the brand has dropped slightly.

Controversy arose in 2016 after consumers found that certain products contained synthetic chemicals that Honest had pledged on their website never to use. The company then had to settle a lawsuit of $7.34m for falsely labelling their products. They further came under fire in the same year for promoting an ‘organic’ infant formula that contained 11 different types of synthetic substances. Although this lawsuit was dismissed by the Superior Court, this still may have had a negative effect on brand value and in turn, this could lead to a potentially controversial IPO.

There is a large number of consumer goods companies in the US and globally, which may be seen as competitors of The Honest Company. These include Johnson & Johnson, L’Oréal, Procter & Gamble and Kimberly-Clark. These are all blue-chip stocks that were established many years ago and are well respected in their industries, so it may be difficult for Honest Co to achieve and maintain the same brand reputation at such an early stage.

The Honest Company is not the first business to be backed by a celebrity. Other recent IPOs have seen support from star investors, such as cannabis company Cellular Goods, which was backed by David Beckham. The company saw its share price surge over 400% on its first trading day in February 2021, which could be in part attributed to Beckham’s involvement. Another example is the upcoming IPO for vegan dairy alternative brand Oatly, which has seen busy investor activity from the likes of Jay-Z, Oprah Winfrey and Natalie Portman. The company now has an estimated valuation of $10bn, which is 5x its previous valuation of $2bn in July 2020. Read more about Oatly’s IPO.