Management reports that the business is performing better than expected and is now delivering profits to shareholders.
Shares of tech-enabled cosmetics platform Oddity Tech (ODD 21.27%) surged on Friday after the company raised its second-quarter 2024 earnings outlook and announced a share repurchase program. As of 2:40 p.m. ET, Oddity Tech shares were up 22%.
Here's why investors are rejoicing
Oddity Tech is an Israeli company that had its initial public offering (IPO) less than a year ago. The company has been boasting strong growth and had projected second-quarter revenue of $189 million, which would represent 25% growth over the previous year. However, management stated today that it is fully capable of hitting this figure, discarding a previous forecast that suggested the possibility of a lower figure.
Additionally, Oddity Tech had expected adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the second quarter to be as high as $56 million. It now expects $60 million.
Perhaps because business is so strong, Oddity Tech management feels now is a good time to engage in a share repurchase program: the company has $150 million at its disposal, a huge sum for a small-cap stock.
Newly listed companies need to be cautious
Without wanting to sound too many alarmists, the timing of Oddity Tech's announcement is notable: Just a few weeks ago, short sellers were accusing the company of a variety of things, including operating an undisclosed number of brick-and-mortar stores in Israel and overstating the capabilities of its artificial intelligence (AI) software.
In its defense, Oddity Tech acknowledged the presence of retail stores but argued they accounted for less than 5% of its sales and had no impact on its financial results.
Updating Q2 guidance mid-quarter could be a move by Oddity Tech management to restore lost credibility. But when it comes to share buybacks, I'm always a bit skeptical when an IPO company does this. After all, they just raised capital by selling shares on the market. Now, less than a year later, they're doing the opposite by using the capital to buy back their own shares.
IPO stocks take time to establish a track record of credibility. This is why many advisors recommend waiting a few years before investing in an IPO company – giving it time to establish credibility. In this case, Oddity Tech seems to have a lot to like, but it also has some legitimate questions. Therefore, it may be best to wait a bit longer before committing your investment capital.
Jon Quast does not hold any positions in any stocks mentioned. The Motley Fool does not hold any positions in any stocks mentioned. The Motley Fool has a disclosure policy.
