In the latest manifestation of the market’s mania, Vroom’s (NASDAQ:VRM) recent initial public offering proved to be an absolute blockbuster. Millions of shares of Vroom stock traded hands as a mad rush ensued. Traders practically climbed over each other to own a stake in the digital car-buying platform.
More seasoned investors might view the market’s behavior as irrational since IPO stocks can be highly risky. As least we can say with confidence, however, that the rush to buy IPO stocks is probably less irrational than the recent trend of buying bankruptcy stocks like Hertz (NYSE:HTZ) and Whiting Petroleum (NYSE:WLL).
The question of whether to own Vroom stock is complicated by the fact that it falls into a number of different categories: IPO stock, e-commerce stock, pandemic stock, you name it. But rather than try to pigeonhole Vroom, let’s seek higher ground amid the madness through an analysis of the facts surrounding this fascinating startup.
A Closer Look at Vroom Stock
There’s not much history to Vroom stock, but we can analyze what’s happened so far. Having gone public at $22 per share, Vroom soon zoomed higher, closing up 118% on its first day of trading. At the end of the week, the share price was up 43%.
Truthfully, it’s too early to claim that real price discovery has been established. Traders will have more clarity in time as a price range emerges for Vroom stock. For that reason alone, it’s probably best for more cautious investors to avoid the stock for a little while.
But then, Carvana had 23 uninterrupted quarters of revenue growth in the triple digits through 2019’s third quarter. That’s an astounding feat, and it’s unlikely to be replicated by Vroom. Still, as 2020 should have taught us all by now, just about anything’s possible in the markets.
Some High-Profile Backers
Carvana comparisons aside, is there a compelling reason to believe that Vroom’s moon-shot debut is more than a byproduct of IPO hype? Judging by the famous names that are currently backing Vroom, the bull case could indeed be stronger than an initial assessment might suggest.
Perhaps Gates is betting on the “order-from-home” trend persisting for a while. This investing logic seems to make sense as e-commerce was already a growing force prior to the onset of the novel coronavirus, and has evidently only gained momentum in 2020.
It’s also possible that Gates wants to wager generally on the emergence of automotive e-commerce. Modern shoppers can’t be faulted for enjoying the convenience of browsing for vehicle delivery options, real-time financing and other car-buying specifics online.
Besides, the old-school paradigm of walking into a dealership and being bombarded by salespeople and their high-pressure tactics may be on its last legs. Today’s shopping experience is changing, and investors are picking up on this. Thus, Bill Gates’ seal of approval on Vroom stock could reflect his appreciation of an automotive market in flux.
Other backers include T. Rowe Price Associates, General Catalyst Partners and L Catterton. Having high-profile stakeholders isn’t everything, but it’s a positive sign nonetheless.
My Takeaway on Vroom Stock
It’s way too early to tell whether Vroom will turn out to be the next Carvana. After all, it’s rather ambitious to expect 775% returns.
Still, modern shopping habits do suggest that Vroom stock is a right-place, right-time kind of investment. And Bill Gates’ imprimatur somehow adds a simultaneously old-school and new-school touch to the value proposition.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.