REVOLUTION BEAUTY (REVB:AIM) 28.6p

Loss to date: 82.1%

Last September we were attracted to Revolution Beauty (REVB:AIM) for the make-up, skincare and haircare brand’s global growth potential in a cosmetics market that has historically exhibited resilience during downturns.

In a decision that has left us red-faced, we kept faith with the stock and failed to cut our losses as the share price continued to plummet long after we said to buy the shares at 160p.

Our optimistic view was that cost-of-living pressures had put consumer-facing stocks like Revolution Beauty on the back foot and the company appeared to be executing well. With hindsight, the collapsing share price and unexpected news on 12 May that finance director Andrew Clark was leaving less than a year after the stock market flotation were major red flags.

WHAT’S HAPPENED SINCE THEN?

On 2 August, Revolution Beauty delayed its results with auditors poring over the books and issued a massive profit warning pinned on cost inflation, retailer destocking, the halt to trading in Russia and Ukraine following the invasion, as well as a slowdown in direct-to-consumer sales as consumers returned to physical stores.

On 11 August came the bombshell news that auditors had raised accounting issues with management regarding the figures for full year 2022. If material adjustments are required, Revolution Beauty’s profits could be ‘materially reduced across a number of potential adjustments including stock and bad debt provisioning and revenue recognition’, warned the company.

Six days later, Boohoo (BOO:AIM) announced it had taken a 7.1% stake in Revolution Beauty, triggering a big share price recovery in the makeup seller.

WHAT SHOULD INVESTORS DO NOW?

Given the lack of earnings visibility and accounting issues coming to light, Revolution Beauty is in a mess.

The Boohoo news has helped to narrow some of the share price losses which means now is a good time to cut our losses and get out. There is still a risk of bad news concerning the accounting issues which could hurt the share price again.

We got this one wrong and should have heeded what the market was telling us all along.

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