Investing 09-12-2022 08:54 17 Views

Rent the Runway stock surged: What can go wrong?

Rent the Runway (NASDAQ: RENT) stock price popped by more than 70% on Thursday after the company published strong results. The shares surged to a high of $2.5, the highest level since October 6. It has soared by over 115% from the lowest level this year. Shares of the embattled company have collapsed by more than 89% from its highest level this year.

Is this a dead cat bounce?

Rent the Runways is a fashion technology company that makes it possible for people to rent high-end clothes and accessories. For example, customers can a Ronny Kobo dress that goes for $525 for just $80. 

Rent the Runway makes money by renting these clothes directly and through subscriptions. The subscription package goes for $99 per month. It has 134,000 active subscribers, which is a good number for a company of its scale.

In a statement, the company said that its total revenue rose to $77.4 million in the third quarter.t The 31% year-on-year growth was better than what analysts were expecting. Its gross margins rose to 40% for the second quarter in a row.

Most importantly, the company’s restructuring process is yielding results. It expects that it will reduce its cash burn by $30 million. The company expects that its revenue for the fourth quarter will be between $72 million and $74 million. It also expects that its restructuring costs will be between $25 million and $27 million.

Rotation from growth to value

Still, the Rent the Runway stock price faces a difficult period despite strong quarterly results. Despite its restructuring, the company will continue burning cash in the coming quarters. The other main challenge is related to macro factors since interest rates are expected to remain at an elevated level. 

The company will also likely struggle as investors continue their rotation from growth to value. If there is indeed a stock market rally, it will likely be led by value stocks.

Rent the Runway stock price forecast

RENT chart by TradingView

The 4H chart shows that the RENT stock price made a strong comeback this week. As it rose, the stock managed to move above the 50-day and 100-day moving averages. The Relative Strength Index (RSI) surged to 82, meaning that it is extremely overbought. Stochastic Oscillator moved above the overbought level.

Therefore, I suspect that the stock will rise and retest the important resistance at $3 and then resume the downward trend. A move above this resistance will signal that there are more buyers left in the market.

The post Rent the Runway stock surged: What can go wrong? appeared first on Invezz.

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