Initial public offerings can definitely be highly sensitive to market conditions. If there is a bear move in the overall indices, the newest stocks always have difficulties. In some occasions, there will be a complete shutdown of public offerings.
But of course, this year was fairly unique. It was the first time that IPOs had to cease because of a pandemic.
However, as seen with the rest of the economy, Wall Street has been quite resilient. Already, there has been a nice pick up in deal activity, especially with high-growth tech and biotech operators.
In fact, when looking at the past year, the performance of the newest stocks has been impressive. Note that 41 offerings have posted gains of more than 100%.
Granted, this may even be a sign of overexuberance. But then again, when you look at the deals, there are still many that look attractive. So here are seven to consider:
- SelectQuote (NYSE:SLQT)
- Reynolds Consumer Products (NASDAQ:REYN)
- Warner Music Group (NASDAQ:WMG)
- Dynatrace (NYSE:DT)
- Ping Identity (NYSE:PING)
- Medallia (NYSE:MDLA)
- Shift4 Payments (NYSE:FOUR)
Newest Stocks: SelectQuote (SLQT)
SelectQuote is a pioneer of the direct-to-consumer insurance market. The company got its start back in the 1980s as a 1-800 service. But as the internet emerged, the company evolved its platform. Despite this, it still has the same core vision: helping consumers with transparency and convenience when shopping for insurance.
While technology is essential, SelectQuote has over 1,000 licensed sales agents. They are trained to help customers navigate the complexities of selecting senior health, life, auto and home policies. By taking this personalized approach, SelectQuote has been able to increase conversions and renewal rates.
Another key to SLQT stock is the company’s extensive experience with marketing across radio, television and the internet. The result is that the company has been able to build a highly profitable lead-generation model.
Then what about the growth? It’s been strong, despite the fact that SelectQuote is not a young company. For fiscal year 2019, revenues spiked by 44% to $337.5 million and net income was $72.6 million, up more than 100% on a year-over-year basis.
Going forward, the biggest opportunity for SLQT stock appears to be the Medicare market. The company estimates this at about $30 billion.
Reynolds Consumer Products (REYN)
For the year’s newest stocks, Reynolds Consumer Products is another one that has been around for a long time. Note that the company was founded in 1919 as a supplier of lead and tin foil wrappers for cigarette and candy companies.
But of course, the company has seen much change since then. It is now a giant in the consumer products industry, with penetration in about 95% of households in the U.S. The lines cover three main categories: cooking products, waste and storage products, and tableware. Just some of the iconic brands include Reynolds and Hefty.
During the past few years, the company has been restructuring its operations. A big part of this has been accelerating product launches. But there has been more emphasis on the millennial market as well.
However, a major catalyst for REYN stock has been the impact of the novel coronavirus. As people cook more at home, they have looked to companies like Reynolds. For example, in the latest quarter, revenues jumped by 10% to $730 million and the net income went from $9 million to $26 million.
Warner Music Group (WMG)
Not long ago, the prospects for Warner Music Group looked grim. The high-margin CD market had gone into a secular decline.
But as music streaming became a bigger part of the market, the overall revenues started to perk up. Warner Music Group, along with the other mega labels, would leverage their content and under go a transformation.
The result has been a successful IPO — and it looks like the momentum will continue. Warner Music Group has significant scale, with labels like Atlantic, Elektra, Parlophone Records and Warner Chappell Music. In all, the library has more than 1.4 million musical compositions and some of the talent include Ed Sheeran, Bruno Mars and Cardi B.
But streaming is not the only growth driver for WMG stock. There is also the potential for robust growth in global markets. A big part of the strategy is to build and acquire music publishing and recording businesses in areas like China, Indonesia, Poland, Russia and South Africa. Many of these countries are under-penetrated in terms of music sales and streaming subscribers.
Retooling existing IT environments is challenging, expensive and time consuming. Yet there are tech companies that have tools to help improve the process. One is Dynatrace. The company has an artificial intelligence platform for multi-cloud environments. For the most part, it processes IT data to map and monitor systems, as well as provide deep analytics. The AI also provides actionable insights and there is continuous automation of key processes.
While the product came out in 2016, it already has more than 2,700 customers across 80 countries. The verticals span banking, retail, manufacturing, travel, insurance and software.
During the latest quarter, revenues rose by 30% to $116.2 million and the GAAP earnings per share came to 16 cents. The coronavirus will also accelerate the growth rate because there is more urgency for companies to undertake transformation efforts.
On the earnings call, CEO John Van Siclen noted: “As the response to COVID-19 is highlighted, applications need to work perfectly at all times to drive employee productivity, ensure optimal customer interaction, guarantee business and transactional continuity and so on. Work locations may change, workloads may shift, but applications must run flawlessly. Applications are the high ground. It’s where the business meets IT.”
Ping Identity (PING)
When it comes to the newest stocks for the past year, there are numerous tech operators that have been around for a while. An example is Ping Identity, which was founded at the height of the dot-com boom in 2000.
The company developed software to help with identity management for enterprises, especially to help with web-based services. The technology was somewhat early. But then again, this gave the company enough time to evolve its technology and build a strong customer base.
As of now, the company has a full-blown platform that spans the cloud, mobile and on-premise applications. It also uses the latest in AI to analyze devices and networks — all in real time.
Last year, revenues increased by 21% to $242.9 million and the net retention rate was 115%. The company also has 38 customers with more than $1 million in ARR (annual recurring revenues), up 52% from the prior year. Consider that Ping Identity counts more than half of the Fortune 500 as customers.
Going forward, the coronavirus is likely to increase the growth rate. After all, with the large number of people who are working for home, companies will need to greatly expand their capabilities for providing secure identity management.
For the year’s newest stocks to hit the market, Medallia has something that is unique: The co-founders are married. That’s right, husband-and-wife duo Amy Pressman and Borge Hald started the company back in 2001. The early days were not easy as they bootstrapped the operation.
But it has been well worth it. Medallia now has a market value of $3.7 billion.
The company is the pioneer of experience management — that is, it uses software to help improve customer engagement. No doubt, with the emergence of social media, this category has become essential for marketing departments.
Medallia processes enormous amount of data to detect the online journeys for customers and prospects. This can help reduce churn, provide for cross-sell/up-sell-opportunities and even help to turn detractors into fans.
True, the coronavirus has resulted in delays of deals and there have been challenges with certain industry segments. But Medallia’s scale and broad product line should mean that the company will be able thrive over the long run.
During the latest earnings call, CEO Leslie Stretch said: “As you know, Medallia primarily serves the large and medium enterprise market. And although even the largest companies are not immune to the current economic environment, we believe they are well-positioned to weather this downturn. At the same time, we do see strength and opportunity in the mid-market.”
Shift4 Payments (FOUR)
In 1998, when Jared Isaacman was 16 years old, he started Shift4 Payments in his parents’ basement. The main reason? He saw the inefficiencies in the payments system for merchants. He knew there had to be a better way.
Fast forward to today: The company has a wide array of software systems, such as for Point-of-Sale, business intelligence and mobile pay-at-table offerings. There are also more than 7,000 software partners and over 200,000 merchants on the platform. The customers range from small companies to larger enterprises like Mandarin Oriental (OTCMKTS:MAORF), Caesars Entertainment (NASDAQ:CZR) and Pebble Beach.
During the past fiscal year, revenues went from $560.6 million to $731.4 million and the adjusted EBITDA grew from $89.9 million to $103.8 million.
But the market opportunity is still in the early stages, as more and more businesses go digital. According to The Nilson Report, the purchase volume on cards in the U.S. is forecast to hit $10.4 trillion by 2027, up from $5.5 trillion in 2017.
Tom Taulli (@ttaulli) is an advisor and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.