Though initial public offerings (IPOs) suffered a dearth of opportunities and enthusiasm this year, Friday’s debut of electric boat manufacturer Forza X1 (NASDAQ:FRZA) — sparking a 139% lift in FRZA stock — bodes well for electric mobility specifically and IPO sentiment broadly. Catamaran boat specialist Twin Vee Powercats (NASDAQ:VEEE) spun off its Forza unit, and VEEE shares are up big too.
Per Forza X1’s press release, the company distributed 3 million shares of common stock at an initial offering price of $5 per share. At these terms, the company would have commanded a market value of $50 million. However, with FRZA stock trading hands at around $12 per share, Forza’s debut represented a resounding success.
Naturally, Forza’s IPO speaks directly to growing societal concerns about sustainability and environmental stewardship. According to the Seattle Times, the federal government designated approximately 26% of U.S. waterways as marine protected areas. Logically, this mandate prevents combustion-powered boats from traversing these protected zones. However, some jurisdictions grant exceptions for electric boats, thus fundamentally auguring well for FRZA stock.
Moreover, Forza scored a major win in North Carolina, as the state agreed to subsidize Forza’s new plant in McDowell County by more than $1 million. Governor Roy Cooper praised the deal, which will award Forza $1.37 million over the next 12 years. In exchange, the company will develop the aforementioned plant in Marion, a city in McDowell County.
Key Questions Linger Over FRZA Stock
Despite resounding enthusiasm for FRZA stock and its public market debut, several questions hang over the underlying business. For one thing, not everyone was enthused about North Carolina’s contract with Forza.
Mitch Kokai, senior policy analyst for the John Locke Foundation, stated, “Gov. Cooper’s latest announcement offers a textbook example of state government using its targeted incentives policies to pick economic winners and losers.” Further, Kokai added, “If the Forza X1 project is an economically viable option, it shouldn’t need incentives to move forward.”
To be clear, Forza states on its Form S-1 disclosure with the Securities and Exchange Commission (SEC) that it has “not yet commercialized our boats and have not sold any boats.”
A second concern focuses on economic viability affecting Forza’s electric boats. With an estimated starting price of around $150,000, affordability issues limit the potential addressable market. Further, with the inflation rate still hit at 8.5% (though slightly improved from June), even affluent buyers may encounter troubles.
Finally, the company must prove its own viability. With several high-profile IPOs having collapsed over the last several months, the new listing market provides zero guarantees.
Why It Matters
While the benchmark Renaissance IPO ETF (NYSEARCA:IPO) — which tracks the “largest, most liquid, newly-listed U.S. IPOs” per its prospectus — soared between the 2020 doldrums to November 2021, the IPO ETF has struggled for traction recently.
On a year-to-date basis, the fund is down nearly 37%. In contrast, the S&P 500 index is down 11.4% during the same period. Therefore, the IPO market needs not just the Forza win but other public debuts to fully regain momentum.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.