It has been a tough period for owners of Adore Beauty Group Ltd (ASX: ABY) shares.
Over the past six months, the small-cap ASX share has lost over 70% of its value.
Is there a rebound coming? Let’s see what Bell Potter is saying about the beaten down beauty retailer.
What is the broker saying?
Bell Potter notes that the small-cap ASX share has released a trading update which has fallen short of expectations. It said:
Adore Beauty released a trading update for the first 47 weeks of FY26, with sales growth of $193.4m +7.4% YoY (vs. BPe $203.9m on a 47-week run-rate basis). For 2HFY26 the company expects the gross margin to be resilient and land at 34.5% (vs. BPe 34.7%), as they chose to reduce promotional intensity as part of their previously outlined strategy.
The low light was that EBITDA is expected to land at ~$4.0m for FY26 (vs. BPe $7.2m), representing a ~2.0% margin (versus previous guidance of b/w 3-4% for FY26e), driven primarily by a sales slowdown paired with an increased fixed cost base from their aggressive store rollout (from 0-20 stores in ~24 months).
Looking ahead, the broker believes the company can deliver on its FY 2027 guidance. This is due to cost savings from its new distribution centre. It said:
The company also provided FY27 guidance, expected revenue growth of at least 10% and underlying EBITDA of b/w $9-13m. We are confident the company lands within the lower end of the guidance, namely due to cost savings of 1) $2.0m from the new NDC efficiencies (from 1Q27), and 2) $2.5m in savings from a head office restructure.
Should you buy the dip?
Unfortunately, Bell Potter believes the Adore Beauty share price weakness isn’t a buying opportunity just yet.
In response to its trading update, the broker has downgraded the small-cap ASX share to a hold rating (from buy) and slashed its price target to 39 cents (from $1.00). This compares to its last close price of 34 cents.
Commenting on the downgrade and valuation crunch, the broker said:
We have adjusted the key assumption we use in our relative valuation, lowering our FY27 EBIT multiple from 12.5x to 10.0x, off the back of a reduction in the median peer group multiple. We move our valuation weighting to 70% relative and 30% DCF, reflecting comparable retail businesses in a more challenging consumer environment, and to reflect current market sentiment on the sector.
We view the DCF as contingent on a macro recovery and execution of an as-yet unproven growth strategy. As a result, we lower our target price by ~60% to $0.39. Given this implies less than 15% upside to the current share price, we downgrade our recommendation to HOLD.
The post Down 70% in six months: What is Bell Potter saying about this ASX share? appeared first on The Motley Fool Australia.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Adore Beauty Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.