If you were looking at a calendar, you would be shocked to find out it wasn’t 1999. That’s because the IPO market is hot, hot, hot. Thanks to the continued rise in stocks and generally low-interest-rate environment, new firms have been tapping the equities markets in a big way.
After a slight dip during the first quarter of the year, the IPO market has roared back. According to IPO specialists Renaissance Capital, more than 62 new stocks hit the tape and raised more than $25 billion from investors.
This was the most active quarter by deal count in roughly four years. Moreover, these IPOs raised the most capital raised out of the last five years. What’s crazy is that many of these IPOs have been killing as they started trading. The average return for these new stocks has been 30%.
With such gains already in the tank and many IPOs still losing money, the question is whether or not they are worth buying today.
The answer is not so simple and depends on the stock. Not all unicorns and big-named IPOs are going to turn out for the best. In fact, many may have gotten ahead of themselves.
Beyond Meat (BYND)
Buy or Sell? Sell
Plant-based and vegan food options are becoming more commonplace in homes and restaurants across the country. All in all, the global plant-based protein market is expected to reach $5 billion in sales by 2020. Capitalizing on this is recent IPO Beyond Meat (NASDAQ:BYND).
And investors have gone gaga for shares in a big way. BYND stock is up a staggering 734% since its IPO. There might be some method behind that insane return. BYND continues to rack-up new deals and customers for its innovative plant-based foods. That resulted in a big sales boost — an increase of 215% — during the first quarter.
However, shares may have gotten ahead of itself. For one thing, we’re talking about a stock with a $12 billion market cap on just $40 million in sales. That makes it very pricey indeed. Investors have basically priced in plenty of its future growth today. Moreover, the firm isn’t even close to profitable and is expected to be for quite some time. Finally, its niche is getting very crowded. A variety of more entrenched food names are starting to move into the plant-based protein market. This includes more traditional meat players like Tyson (NYSE:TSN). In the end, BYND may not get all those sales investors are banking on.
Given the euphoria behind BYND stock and potential for that excitement to not pan out, investors sitting on gains in the hot IPO may want to cash in. Beyond Meat may be beyond a reasonable buy at this point.
Buy or Sell? Buy
Thanks to the toxic political environment, many people are starting to turn away from social media sites like Facebook (NASDAQ:FB) and Twitter (NASDAQ:TWTR). Which is why recent IPO Pinterest (NASDAQ:PINS) could be a big bet.
PINS operates a digital bulletin board. Like a recipe? Pin it. Think a wall color for your home is pretty? Pin it. Want to save an article on how to fix your vintage Indian Motorcycle? Pin it. The point is, it’s all about you. There is almost zero interaction with other people.
But the real win for Pinterest is that its users are generally on the site looking for ideas and inspiration. Basically, they are in the market to directly buy something specific. While FB builds a user profile for advertisers, there’s no guarantee that they actually want to buy the product being pushed into their feed. Generally speaking, if you’re searching for wall scones or dining room tables on PINS, you’re looking to add them to your home. This gives it an edge when it comes to generating ad sales versus its peers. As for those ads themselves, because of the nature of the site, they don’t feel intrusive like a Facebook or Instagram ad does.
This strategy seems to be working well for PINS. The IPOs first-quarter results got a big 54% jump in revenues, while active users also increased. The best part is, the firm’s losses have lessened. With a long runway — Pinterest is looking to add more male users to its platform — the potential is there. That could make PINS stock a big buy for the long haul.
Zoom Video (ZM)
Buy or Sell? Buy
If you have used Skype or another video conference software, you’ve noticed that it hasn’t lived up what the Jetson’s promised us. It’s grainy, connections stink, and it tends to freeze-up. But loud computing SaaS firm Zoom Video (NASDAQ:ZM) is looking to change that.
The beauty is that Zoom’s pricing model based on subscriptions and add-ons is very appealing to companies. Adding on enhanced video, additional users and other capabilities are easy and quickly scalable. ZM then collects a monthly check.
So far, ZM has managed to add over 405 large enterprise customers to its umbrella. And those firms are spending some big bucks. Revenues have jumped more than 103% in the last quarter. Income from operations was positive and GAAP earnings clocked in at a slight profit. This reverses losses in both areas in the year ago period. In the end, Zoom’s simple operating model and focus is allowing it to quickly become a profitable IPO.
With sales and new customers growing, ZM stock could make a great addition to a portfolio. That is, unless someone else doesn’t buy it first. Already, M&A buzz is starting to hit the stock as many tech players would love to get their hands on the firm’s operations.
Buy or Sell? Buy
Driving around my neighborhood during the day, you see a ton of Amazon (NASDAQ:AMZN) boxes sitting on porches and by front doors. You also see equally as many bright blue boxes from new IPO Chewy (NASDAQ:CHWY).
Chewy operates a pet-specific online retailer offering everything from food and toys to pet medicines and health products. The firm is hoping to tap into the growing concept that dogs, cats and other animals are actually members of the family. And pet parents will to spend some big bucks making sure their furry friends are treated right. According to the American Pet Products Association, Americans spent more than $72 billion on pet care products last year.
CHWY’s advantage comes down to its branding. After pet store owner PetSmart purchased the online retailer a few years ago, it underwent a massive advertising spending spree. That increased brand awareness and made it the go-to place to buy supplies online. And while Amazon may be a threat, the best way to think of this is sort like Etsy (NASDAQ:ETSY). AMZN couldn’t compete with ETSY’s branding in homemade crafts.
The results seem to be working in CHWY’s favor. Net sales increased 45% to over $1.1 billion last quarter. Meanwhile, the firm saw a 69% improvement in its earnings, moving it closer to actual profits. With the IPO being up almost 50% since its launch, there could be more in store for Chewy stock.
Buy or Sell? Sell
Perhaps no other IPO on this list was more hyped than Uber (NASDAQ:UBER). The ride-sharing firm was built-up for years as the next big thing. Unfortunately, that hasn’t translated into actual gains for its investors. Right now, you can still score shares of UBER stock for below its $45 per share IPO price tag.
And there are plenty of reasons why. Business Insider counts 49 of them. Scandals and issues have continued to plague the firm. This has included everything from internal working environment problems, accounts of price gouging during emergencies and even sexual assault by drivers. This has continued to hurt the firm’s public image. And could be why Uber has lost some key contracts — such as their deal with McDonald’s (NYSE:MCD) — in recent months.
Meanwhile, competition from smaller and other ride-sharing services have hit UBER in terms of fares and overall revenues. Despite rising bookings, losses at UBER continue to mount. Last quarter, those losses jumped 116% year-over-year. That’s a troubling sign for any company — especially for one that carries a $73 billion market cap. California’s recent vote to make Uber drivers employees rather than contractors could spell more issues when it comes to that path to profitability.
In the end, it’s not that UBER isn’t an innovative firm or game-changer. It certainly is, it’s just a question of too many issues plaguing the firm. That could make it a big-time sell until it gets those issues worked out.
At the time of writing, Aaron Levitt held a long position in AMZN