The market for initial public offerings (IPOs) looks to be heating up again after being largely dormant over the last two years. According to accounting firm Ernst & Young, there were 968 IPOs globally during the first three quarters of this year, down 5% from the same period in 2022. The IPOs year-to-date have raised $101.2 billion in capital, 32% lower than a year ago.
While still soft, several high-profile new stocks to buy have generated excitement in the market, including the largest share offering of the year (more on that below). Several hotly anticipated IPOs will likely be held in coming months, including discussion website Reddit expected to be valued at around $5 billion, and financial technology (fintech) company Stripe, with a forecasted valuation of $50 billion. As the IPO market heats up, we look at three new stocks set to explode higher.
Cava (CAVA)
The most successful IPO of the year so far has been Mediterranean restaurant chain Cava (NYSE:CAVA). The company, also called the next Chipotle (NYSE:CMG), held its IPO in June and exploded out of the gate. Cava stock rose 99%, finishing its first trading day on the New York Stock Exchange at $43.78 per share and with a market value of nearly $5 billion. The stock subsequently pulled back but then jumped an additional 12% higher when the company issued its first earnings report in August.
Cava’s reported profit as part of its very first print shocked analysts. The company announced net income, or profit, of $6.5 million, or 21 cents a share, rising from a net loss of $8.2 million, or $6.23 per share, a year earlier. Revenue in the quarter totaled $172.9 million, up 6% from $163 million a year ago. The company opened 16 new Cava restaurants during the period, bringing its total to 279 locations. CAVA stock has since pulled back over the last two months. But that has only made its valuation more attractive.
Birkenstock (BIRK)
German sandal maker Birkenstock is expected to go public in New York by the end of October this year, seeking a valuation of $9.2 billion. A tentative date of Oct. 11 has been set for the IPO. The company will sell about 32 million shares, priced between $44 and $49 each, in the upcoming IPO. The company plans to list shares on the New York Stock Exchange under the ticker symbol “BIRK.” Management appears undaunted by the recent lackluster market debuts of other companies, such as online grocery retailer Instacart (NASDAQ:CART).
Birkenstock, which has been making footwear since 1774, hopes its history and brand recognition will lead to a successful IPO. A sixth-generation family-owned business, Birkenstock continues to produce most of its sandals and other shoes at manufacturing facilities in Germany, as it has for hundreds of years. In the regulatory filing related to its IPO, Birkenstock said its revenue rose 67% to $1.3 billion in 2022 from $780 million in 2020, while its net profits increased 85% to $200.7 million in 2022 from $108.7 million in 2020.
Arm Holdings (ARM)
After jumping 25% on its first trading day in mid-September, the stock of British chipmaker Arm Holdings (NASDAQ:ARM) declined 16%. Currently changing hands at $53 per share, ARM stock is in danger of falling below its IPO price of $51. The company had the misfortune of going public amid the September market downturn. It also suffers from a sky-high valuation, trading at a price-to-earnings (P/E) ratio more than 100 times its most recent fiscal year profit.
However, things could turn around for Arm Holdings. A strong first earnings print as a publicly traded company could get the stock moving in the right direction. Arm, whose chips are in nearly every smartphone made, also has a huge addressable market. Arm executives have said they expect the total market for its microchips and semiconductors to reach $250 billion by 2025. Demand for Arm’s chips is growing as other companies use its technology to develop AI applications. In time, ARM stock could be a winner.
On the date of publication, Joel Baglole 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.
