By now, it’s fairly common knowledge among financial market observers that the 2019 IPO stocks will be big, headlined by a slew of tech unicorns that are finally ready to hit the public markets. Names in this group include Uber, which will likely debut at a $100 billion-plus valuation, and Airbnb, which will likely command a $30 billion-plus valuation. There’s also Palantir with a rumored $30 billion-plus valuation, Slack with a $10 billion-plus valuation, and WeWork with a potential $40 billion-plus valuation.
But, the first big player in this group to IPO in 2019 was Lyft (NYSE:LYFT), and the results were far from spectacular. Lyft popped on its first day of trading, but it has been nothing but down and out since then. As of this writing, LYFT stock actually trades more than 15% below its IPO price.
The ostensible failure of the Lyft IPO has some fearful about upcoming IPOs. But, the failure of the Lyft IPO is getting too much press, and investors shouldn’t read much into it. While the Lyft IPO did ostensibly fail, there have been a ton of other IPO stocks in late 2018 and early 2019 which have been huge successes, and which imply that future IPOs in 2019 will do just fine.
Which IPO stocks fall into this category of big winners so far on Wall Street? Let’s take a deeper look at 6 red hot IPO stocks that all investors should be watching.
Gain From IPO Price: 100%
At the top of this list is a freshly public tech company which Wall Street has fallen in love with in just a few days.
Zoom (NYSE:ZM) is a video conferencing company which priced its IPO at $36 per share, opened up 80% above that IPO price, and has continued to soar ever since en route to a 100%-plus gain from that $36 IPO price. Why the huge demand for Zoom stock? The hyper-growth tech company checks off every box growth investors are looking for. It’s growing revenues at 100%-plus rate, with a small revenue base in a secular growth and very large video conferencing market. Gross margins are sky high around 80%, while opex rates are surprisingly low for a small company, and Zoom is actually profitable already.
All in all, you have a hyper-growth video conferencing company that’s already profitable. That has investors salivating.
But, the valuation on ZM stock is pretty rich here and now, and the stock has come very far, very fast. As such, caution is warranted here, especially considering that the video conferencing market isn’t light on competitors.
Red Hot IPO Stocks: Pinterest (PINS)
Gain From IPO Price: 40%
Second up is a social media company with a lot reach and a ton of potential to monetize that wide reach.
Unlike digital ad IPO stocks before it, the Pinterest (NYSE:PINS) IPO has been a huge success thus far. After pricing the IPO at $19 per share, PINS stock has rallied in a big way ever since, and is now up 40% from that IPO price. The rationale behind the rally is simple. This is a company which has a ton of users (265 million monthly active users), and is monetizing those users at a low rate (ARPU of just over a $1 last quarter), so the runway for robust revenue growth through ARPU expansion is promising. Plus, margins are healthy, the international user base is growing rapidly and the valuation is reasonable.
All together, then, PINS stock has been a big winner because the fundamentals are healthy, the upside potential is good, and the valuation is cheap. So long as those three things remain true, PINS stock will stay in its IPO honeymoon phase.
Red Hot IPO Stocks: YETI (YETI)
Gain From IPO Price: 100%
Third we have an outdoors consumer product company that didn’t have a huge IPO pop, but has been a steady winner in its short life as public company.
Meet YETI (NYSE:YETI). YETI is an outdoors consumer products brand that specializes in coolers and drinkware. YETI went public at $18 per share in late 2018 without much fanfare. The stock actually traded down on its first day on Wall Street. But, YETI stock has doubled ever since as the company has reported back-to-back strong earnings reports which ultimately underscore that this company has healthy growth drivers, in a healthy market, with a healthy margin profile.
In other words, YETI is a healthy company. Under $20, YETI stock wasn’t priced for healthy. That’s why the stock rallied. Above $30, the IPO stock is priced for healthy. But, not entirely. As such, so long as the numbers remain good (which they should for the foreseeable future), then YETI stock should remain on an uptrend until valuation becomes an issue. That won’t happen until around $40.
IPO Stocks: Jumia (JUMIA)
Gain From IPO Price: 140%
Maybe the most interesting stock on this list is Jumia (NYSE:JMIA).
Long story short, Jumia is Africa’s e-commerce juggernaut, and that means this company is oozing with long-term growth potential. Africa is the last great frontier of the tech revolution. Internet penetration rates on every continent outside of Africa measure north of 50%, and ex Asia, they measure north of 60%. But, in Africa, the internet penetration rate is roughly 36%. That number won’t stay low forever. Over the next several years, thanks to a combination of factors such as urbanization, expansion of the middle class, and heavy technology infrastructure investments, Africa’s internet penetration rate is expected to surge higher, and that surge will spark enormous growth in Africa’s internet sectors.
One of those sectors is e-commerce. Less than 1% of all retail sales in Africa were conducted online in 2018. As internet penetration rates rise, online retail’s penetration will likewise rise, and that will create a huge growth opportunity for players in the market. The largest player in the African e-commerce market today? Jumia, which has 4 million active consumers and a gross merchandise value near $1 billion.
If Jumia can maintain its market leadership position as the African e-commerce market dramatically expands over the next decade, then JMIA stock is a multi-bagger in the making. But, there’s a lot of risks regarding execution and valuation, so this IPO stock isn’t for the faint of heart. Best way to look at Jumia? A high-risk, high-reward play on the potentially enormous African e-commerce market.
Tencent Music (TME)
Gain From IPO Price: 35%
One of the more interesting recent IPO stocks is the company which many people are calling the Spotify (NYSE:SPOT) of China.
Tencent Music (NYSE:TME) is the premiere music streaming platform in China. China is a huge market with a rapidly expanding digital economy. As such, the upside potential for Tencent Music to grow with the rapidly expanding Chinese digital economy is enormous. But, there are a few problems here. Namely, there’s a ton of competition, the company gets most of its revenue from virtual gifts, there’s only 25 million paying subs, and the valuation is huge.
Thus, TME stock is a high-risk, high-reward play on the music streaming market in China. If consumers in that market start paying up for music services, then TME stock will explode higher. If not, TME stock could be stuck in neutral for the foreseeable future.
Levi Strauss (LEVI)
Gain From IPO Price: 35%
Last (and maybe least) on this list is an older company which recently made its return to Wall Street.
Blue jeans giant Levi Strauss (NYSE:LEVI) returned to the public markets in late March. The IPO was a smashing success. The stock opened up more than 30% above its $17 IPO price. LEVI stock has since largely held onto those gains — but not added to them — as first quarter numbers were a mixed bag that implied positive but slowing growth going forward.
Ultimately, it’s tough to see the upside scenario in LEVI stock. The athleisure trend remains as hot as ever, and that trend continues to steal share from the jeans market. As such, Levi Strauss finds itself on the wrong side of the apparel tracks. To be sure, that doesn’t mean growth will flat-line. But, it will put a lid on growth, and a lid on growth will hurt LEVI stock, which currently trades at above what I peg as a reasonable 2019 price target for the stock.
As of this writing, Luke Lango was long LYFT, PINS, YETI, and SPOT, and may initiate a long position in JMIA within the next 72 hours.