Needham & Company's analysts upgraded the price target for Revolve Group (NYSE:RVLV) to $23 from $16 while maintaining a Buy rating, following the company’s reported Q4 beat, which resulted in a stock price jump of more than 20% intra-day today.

The analysts noted that Revolve Group is witnessing positive signs in demand, with the holiday season surpassing expectations. This marks the first quarter in a year where the REVOLVE brand has seen positive sales growth, and it comes with improved margins. Although the trend for the current quarter is slightly down due to a decrease in markdown sales and both brands being less promotional, with full-price sales slightly up, an easier comparison in March is expected to enhance the trend (with projections of a 1% decrease in sales for Q1 2024).

The company has seen an improvement in return rates sequentially, thanks to the initiation of specific strategies, and is forecasting stable margins for 2024. There could be potential for margin improvement if return rates continue to get better, as management indicates that a 1% change in return rates equates to a 30-50 basis point impact on Selling & Distribution annually. Despite the stock trading at over 20 times EV/EBITDA based on 2024 estimates, the analysts believe that Revolve Group deserves a higher multiple given the anticipated improvements in both top line and margins.