RENT

We rate Rent the Runway, Inc. (RENT) as a Reduce with a composite score of 42.4/100 at a current price of $6.43. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in momentum (74th percentile) and value (49th percentile), which together account for the majority of the composite score. Offsetting weakness in stability (16th percentile) and investment (23th percentile) tempers our overall conviction. We assign a No Moat rating (34/100), Very High uncertainty, and Poor capital allocation.

Key items to watch: the path to profitability. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Rent the Runway, Inc. holds a top-quartile position (#0 of 50) within the Retail Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 42.4/100 places it at rank #3211 in our full 7,333-stock universe. At $17M in market capitalization, Rent the Runway, Inc. is a small-cap player in the Retail Trade space, which limits certain scale advantages but may allow for more agile strategic execution.

The outlook is moderately positive, with revenue expanding at 11% and favorable momentum (74th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 72% (+35.6pp vs sector) narrow to operating margins of -22% (-26.3pp vs sector) and net margins of -1.9%, yielding a gross-to-net conversion rate of -3%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $6.43, Rent the Runway, Inc. is trading near fair value based on current fundamentals. Our value factor score of 49/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 41.6x (a 94% premium to the sector median of 21.4x), EV/EBITDA of 0.2x (discounted to peers), P/S of 0.7x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Very High uncertainty rating to Rent the Runway, Inc.. The stock exhibits multiple compounding risk factors: elevated market sensitivity (beta of 1.80), current negative profitability (net margin -1.9%), below-average price stability (16th percentile). The extreme uncertainty around future cash flows makes precise valuation difficult, and the range of outcomes is exceptionally wide. Only investors with high risk tolerance and extended time horizons should consider this name.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.80); current negative profitability (net margin -1.9%); below-average price stability (16th percentile); weak quality scores (35th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 16th percentile and quality factor at the 35th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 72% provide a buffer against cost pressures; a 13.49% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate Rent the Runway, Inc.'s capital allocation as Poor. Key concerns include low returns on equity (-33.5%), negative profitability. Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Rent the Runway, Inc. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Rent the Runway, Inc. receives a Reduce rating with a composite score of 42.4/100 (rank #3211 of 7,333). Our quantitative framework assigns a No Moat (34/100, trend: stable), Very High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 39/100.

Our analysis does not support a constructive view on Rent the Runway, Inc. at this time. The combination of limited competitive advantages, very high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.