Investor Alert

London Markets Open in:

The Ratings Game

Oct. 19, 2021, 8:54 a.m. EDT

There are more than 50 brands targeting Gen Z and millennials that newly public AKA Brands could acquire, analysts say

Tonya Garcia

AKA Brands Holding Corp. has acquired four brands to create the portfolio that it currently has, and KeyBanc Capital Markets analysts think there are dozens more acquisition possibilities out there.

“Acquiring new brands is core to our strategy and an important driver of our future growth,” the company’s prospectus said. “We are evaluating multiple opportunities for such acquisitions in the near term.”

See: AKA Brands shares slump in trading debut as company highlights risk that eco-conscious Gen Z shoppers will reject its fast-fashion business model

KeyBanc analysts think there are lots of companies to consider.

“Within AKA’s targeted Gen Z/Millennial consumer set, we believe there are 50+ compelling brands that could make attractive acquisition targets,” KeyBanc said.

Moreover, analysts think there are already brands in the company’s portfolio, including Princess Polly, a women’s fashion site, and Culture Kings, with its focus on sneakers and streetwear, that are poised for growth.

“We think streetwear/sneakers is only secondary to athleisure in terms of scope and impact to the broader apparel/footwear landscape. We believe that a long-term strategy to add select flagship doors in the U.S. will help increase brand awareness and help Culture Kings continue to expand its U.S. product offering,” KeyBanc said.

KeyBanc initiated AKA Brands at overweight with a $13 price target.

Also: Saks e-commerce unit looks to go public at valuation near $6 billion

“AKA’s operational and cloud-based tech stack can help digitally native brands grow,” analysts said.

“We also believe that the multibrand approach helps each individual brand focus on its specific target consumer rather than the typical ‘growth through adjacencies/new concepts’ that invariably results in homogenization.”

Other analyst groups are also upbeat about AKA’s asset-light business model.

“The company utilizes real-time data and consumer insights to identify the latest trends, and works with its brand partners and global sourcing network to quickly bring high quality products to market,” wrote Truist Securities.

“This strategy has led to a low sales return ratio of 11% in 2020, and an above average full price sell-through rate of 80%.”

And analysts think that AKA’s use of “micro-influencers” rather than celebrities is a cost-effective and efficient way to acquire customers.

And: Newly public On Holding is following in New Balance’s footsteps, in Baird’s view

Truist initiates AKA Brands with a buy stock rating and $16 price target.

Cowen also says that AKA’s information gathering in the U.S. and Australia allows the company “to better-inform future merchandising and marketing should translate into top-line growth.

Cowen rates AKA stock outperform with an $11 price target.

Even with these advantages, Wells Fargo is taking a wait-and-see approach.

Don’t miss: 70% of Gen Z shoppers plan to do their holiday shopping in stores. Here’s how the modern bricks-and-mortar experience is changing.

“While we are intrigued with AKA’s asset-light model, portfolio of distinct brands and revenue growth potential, we’re on the sidelines given unknowns regarding AKA’s ability to scale given a limited track record over the company’s short, three-year history,” analysts said.

Wells Fargo notes that AKA is generating positive EBITDA even as other e-commerce retailers are not.

Analysts rate AKA equal weight with a $10 price target.

AKA Brands stock slumped below the $11 IPO price when it made its debut last month. Shares closed Monday at $8.92.

The Renaissance IPO ETF (PSE:IPO) is up 5.3% for the year so far while the S&P 500 index (S&P:SPX) has gained 19.5% for the period.

Link to MarketWatch's Slice.