Why I Am Downgrading BARK

Photo by Asa E-K on Unsplash

I initiated coverage of Bark, Inc. (BARK) in late May with a Buy rating. It has reported its Q4 since then and has increased in price. Today, I am downgrading it to Hold.

The stock has gone up since I covered it on May 27th ahead of the market open, but that is not a reason to sell. In the article, I warned of an upcoming removal from the Russell 2000 Index, which remains an issue. But, that is not the reason to sell either. Why sell then? The numbers go worse!

Where BARK Is

As I type, the stock is trading at $10.25. Here is the chart:

I see resistance at $11 and support at $9, and I note that there is still an open gap above from March. The stock is down from where it ended the year, $12.05, and it is way down from the peak near $20 in January.

Looking at the action year-to-date relative to the Russell 2000 index, it has underperformed substantially:

BARK Had a Rough Q4

After the close on 6/9, the company reported its Q4 ending March 31st. It held a conference call the next morning, and then it filed its 10-K. The conference call was pretty quick, and just one analyst asked a question.

In Q4, revenue fell 25% from a year earlier, leaving the FY26 revenue at $395 million, down almost 19%. Gross profit fell for the year by 20%. Adjusted EBITDA was just 0.2 million for FY26, down from $5.4 million in FY25. Q4 adjusted EBITDA was $3.2 million, down from $5.2 million in Q4 a year earlier.

The balance sheet at the fiscal year-end showed that cash had declined a lot, with inventory down just a bit from a year earlier. The Equity fell from $99.5 million to $72.0 million, as Liabilities fell less than Assets. Tangible book value ended Q4 at $70.5 million, down from $94.1 millon.

Tangible book value is important, as the company is losing money and trying to get credit extended by Western Alliance Bank again (a $35 million line of credit is currently open until August 29th). Positively, the company has no debt at all after paying down its convertible notes last year. Negatively, the company's cash flow from operations in FY26 was -$23.2 million, which was worse than the $7.1 million burn of cash in its operations in FY25. For the year, it reported an operating loss of $40.2 million.

The FY27 Outlook for BARK Is Not Great

BARK guided for revenue to be $325-340 million this year, with Q1 almost complete. This would be a decline from the $395 million in FY26. Adjusted EBITDA is being guided at breakeven to a small positive in Q1, and to $7 million to $10 million for the year. This is a fantastic level, if achieved, and a large improvement compared to $0.2 million in FY26. The company also authorized a $40 million share repurchase. The good news is that the press release stated that it would be funded through free cash flow.

There is just one analyst providing coverage of BARK, and the revenue projection for FY27 is now $327 million. The adjusted EBITDA estimate is now $4.9 million, and improvement from $4.1 million. The revenue estimate has declined since the end of May from $414 million. The analyst has an EPS forecast of -$2.18, which has gotten a bit worse and is not a nice-looking number for a $10 stock!

Why BARK May Decline

I have already shared that the company will be removed from the Russell 2000 later this month, and that may lead to some selling by portfolio managers of active or passive funds or ETFs. I had seen the stock as cheap enough already to buy in front of this move, but I no longer do.

The market cap at $10.25 it is about $90 million using the shares outstanding of 8.8 million. This is about 1.3X tangible book value, a slight premium. Looking at the enterprise value, this works out to be about $71 million. At the adjusted EBITDA outlook for FY27, enterprise value is 14.5X, no bargain.

Small-cap stocks are in favor generally, but that could change. BARK is tiny, and not widely followed. I think that the stock could test the tangible book value, which would result in a decline to about $7. It is unique enough of a company and has a chance to be potentially acquired, so I would not bet on the move to $7. I suggest patiently watching.

Conclusion

I shared my thoughts recently and liked the potential for BARK. I am concerned that the price action ahead may punish its holders. I am downgrading it to Hold now and watching for signs of EBITDA growth. The market cap is tiny! Good luck to all of the BARK holders.