Brief on PuffCuff
Strong revenue growth and reasonable valuation make this an attractive investment opportunity.
PuffCuff sells hair clamps for individuals with curly or textured hair. At face value, a hair accessory company doesn’t look like a venture-scale business; however, based on closer inspection of the financial metrics and analysis of user feedback, I believe this company has a good shot of becoming an iconic brand for individuals with curly hair expanding beyond hair clamps.
PuffCuff has created hair clamps consumers love. Positive reviews (4/5 stars) account for 67 percent of all Amazon reviews for PuffCuff Original 5" - their first and most popular product - this year. Neutral (3 stars) and negative (1/2 stars) reviews account for 9 and 24 percent of reviews. While a sizeable number of customers do dislike the product, customers who like the product express a much higher level of approval compared to those who dislike it. When our team analyzed all the reviews using a sentiment analyzer program, we found positive reviews had a median intensity score of 0.79 while negative reviews had an intensity score of -0.21 (+1 indicates a high degree of approval while -1 indicates a high degree of disapproval). Further, the company’s return rate was 0.64 percent last year; this compares favorably against the average of 5.3 percent in the beauty industry.
PuffCuff’s strong revenue growth alongside modest increases in marketing expenses indicates the team is executing its marketing strategy well. The company’s revenue grew 141 percent from $830k in 2018 to $1.99 million in 2019. During this same period, Sales and Marketing expenses grew at a notably slower pace of 42 percent from $132k to $193k. PuffCuff has built a significant social media following with 56k followers on its Facebook page and 74k followers on Instagram giving it massive organic reach.
As PuffCuff shifts from targeting early adopters to the early majority and seeks to attract more price-sensitive customers, it will likely offer steeper discounts, reducing profit margins. PuffCuff has already been actively increasing the amount it offers on discounts. In 2019, the company offered a total of 506k in discounts (25 percent of total revenues). The year prior, the company offered 63k in discounts (8 percent of total revenues). However, PuffCuff has been able to manufacture its products affordably giving it financial buffer; the cost of revenues was only 28 percent of total revenues in 2019.
What’s exciting about PuffCuff is how it can expand to adjacent spaces and create other personal care products customized for individuals with curly hair. The company has built a strong community of users and a solid track record of marketing efficiently. If the company is able to capitalize on these strengths and successfully launch a subscription service for customers, it would become a lot more attractive as an acquisition target and yield investors a good return. The company’s modest 5 million dollar valuation, revenues of close to $2 million last year, rapid growth, and potential for new product lines all make this is a compelling investment opportunity.