CNBC’s Jim Cramer on Tuesday advised investors to watch out for buying Warby Parker stock ahead of the eyewear retailer’s scheduled direct listing on Wednesday.
“In a tough market where investors are starting to sour on new issues, I think you should steer clear of Warby Parker unless he drops below that threshold. [$40] benchmark price and you can get it within $ 30, “the host of” Mad Money “said. Otherwise, I recommend … waiting for a pullback to a lower level.”
Cramer said he was a fan of Warby Parker as a business, suggesting he had “a great business model” for cutting out middlemen by making and selling his own glasses. While Warby Parker initially focused on e-commerce, the company has also expanded its physical footprint, Cramer said, helping it attract consumers who would prefer to purchase frames in person.
“So far the company is doing pretty well. In the first six months of the year, Warby Parker has seen 53% revenue growth and 60% gross margin. They are very close to making a profit, ”Cramer said, adding that the company is also projecting 25% revenue growth for next year.
“Putting it all together, Warber Parker has strong finances, but there is nothing spectacular about the numbers – a good story, not a good story,” Cramer said.
Cramer also said he had “real concerns” about the company, including its projected valuation and whether there was a limit to the number of people who actually want to buy glasses online. “If Warby Parker is less of an ecommerce disruptor and more of a low-cost eyewear chain, I don’t know. Call me half-heartedly,” Cramer said.
“Their market share is still less than 2%,” Cramer added. “While management is presenting this as an opportunity because it means they have a lot of room to grow, you have to ask yourself if they will be able to pull this off.”
Investors should also be careful about buying Warby Parker now due to the broader market conditions, Cramer said. The three main US stock indices are down sharply in September.
“With Warby Parker, the biggest issue is timing. It’s a market that’s really fed up with new public issues,” Cramer said. “Today it has savagely backfired on anything to do with growth – it’s not the best environment for a burgeoning eyewear retailer to debut.”