A few years ago, it seemed that new initial public offerings (IPOs) and special purpose acquisition companies (SPACs) were coming around almost every week. When markets are hot, companies tend to take advantage and issue their shares to the public. Indeed, more than 1,400 IPOs and SPACs have gone public in the U.S. since 2021 alone.
Not surprisingly, many of those offerings were not pristine quality and have fallen on hard times subsequently. But there are some real diamonds in the rough.
Given the huge number of new public offerings, some rules are for this list. These three IPOs to buy were all traditional public offerings (not SPACs); they came public in 2021 or later and are all down at least 20% from their IPO price. With that set, let’s dive into these three top underperforming IPOs that are set to bounce back in the coming months and years.
DLocal (DLO)
DLocal (NASDAQ:DLO) is a payments processing platform focused on the South American market. Based in Uruguay, DLocal provides payment solutions to firms, including e-commerce and digital streaming, ride-hailing, FinTech and travel.
The company went public during the 2021 e-commerce boom and arguably was generously valued, given the demand for payment companies.
Since then, DLO stock has tanked. Investors have sold off payment companies in general. And bears highlighted questionable accounting tactics and high-risk merchants such as cryptocurrency companies that use DLocal’s platform.
However, the company now appears to be recovering. It has brought in new management and has reported strong operating results. The company is already quite profitable, selling at less than 30 times forward earnings, and analysts see DLocal growing revenues and earnings at more than 30% in 2024.
The Duckhorn Portfolio (NAPA)
The Duckhorn Portfolio (NYSE:NAPA) is a pure-play wine company focused on upscale and luxury wine brands. Duckhorn’s portfolio includes the Decoy, Goldeneye, Duckhorn, Calera and Kosta Browne brands.
NAPA shares plunged following its IPO due to weakness in the upscale wine market. Luxury wine consumption is heavily tied to on-premises at fine dining restaurants and upscale hotels. The pandemic affected these industries, and wine producers like Duckhorn had excess inventory.
However, the company should be turning the corner. While the industry still sees falling volumes, experts foresee growth in value generated in the upscale part of the wine market in 2024 and further recovery following that. Meanwhile, Duckhorn Portfolio has changed management and is engaging in further M&A to improve its operations during this cyclical trough. This premium wine producer sells at a discount at less than 14 times forward earnings.
Portillo’s (PTLO)
Portillo’s (NASDAQ:PTLO) is a fast casual restaurant chain focused on Chicago-style food such as hot dogs and Italian beef.
The restaurant came public during an upbeat market sentiment when investors were looking for the next Chipotle. However, Portillo’s has seen a fairly slow revenue growth rate in recent years. While the company is looking to expand its national footprint, some investors have questioned whether the Chicago-based chain will find similar resonance with consumers in markets farther from home.
It remains an open question of how large the ultimate addressable market for Portillo’s concept will be. With PTLO stock down more than 40% over the past year, however, there is value to be had, especially as some states, such as Florida, are proving to be real winners for Portillo’s.
At this price, Portillo’s shares are going for less than 1.25x revenues, which is hardly a demanding valuation for a fast casual chain already quite profitable. The company remains committed to 10%/year unit growth, and if it hits that number, shares should rise dramatically from their current valuation.
On the date of publication, Ian Bezek held a long position in NAPA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
