Yahoo Finance recently published a review of the essential IPOs of 2021. An Initial Public Offering (IPO) is when a once private company offers its shares to the public on a stock market. Listing on a stock market is often done to raise capital for growth when a company’s market opportunity is so ample that private markets cannot supply it with money to attack that opportunity. In other instances, companies reward their backers by allowing them to sell all or some of their shares to the public. Some companies with healthy growth prospects may list as a way of helping them pay back debt, in the belief that once their debt is off the books, they can earn economic profits for their shareholders. Often, the listing is motivated by some combination of the above.
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In looking at the companies Yahoo Finance features, the reader is advised to remember that two things are vital In judging an IPO: the SEC-filed registration document and the price.
The registration document describes the company, provides detailed financial statements and any other information that the typical, reasonable investor would deem essential to invest. The purpose of the registration document is to level the playing field among investors and provide as much information as possible to facilitate intelligent decisions.
Students of Benjamin Graham will know that a company is a beautiful company offering botox cosmetic treatments, does not mean that it is a significant investment. Returns are a function of price appreciation and free cash flows, so overpaying for a company diminishes the investor’s ability to earn returns.
With greater optimism about the vaccination program in the United States in 2021, investors may shift their portfolios away from healthcare and tech companies and toward companies representing a return to normalcy, which may or may not include tech firms. Still, they may also have cyclical businesses that flew under the radar in 2020.
So far, what we know about 2021 is that the big names going public are from various industries, such as consumer discretionary, fintech, materials, and communication services. Yahoo Finance picks out Roblox, Affirm, Atotech, Petco, and Southeastern Grocers, as the IPOs to watch in 2021.
Roblox is the gaming platform that all parents have heard of. It allows users to create and release their games on Roblox’s platform and earn an income on that platform by selling features, in-game assets, and other items for its Robux in-game currency, which is convertible to real-world cash.
As Roblox’s S-1 shows, the company has been growing very fast, winning over users and boosting revenue without bringing its losses under control.
Roblux is looking to raise $1 billion on IPO, which should keep ears cocked. The user base has grown 82% between 2019 and 2020, reaching 31.1 million daily active users, with revenues at $589 million and losses at $203 million. Losses have grown four-and-a-half times since 2019. Nevertheless, the company enjoys a positive cash flow, and the size of the IPO will keep it on everyone’s radar.
Affirm Holdings (AFRM)
Affirm Holdings, the pay-later-retailer, could reach a $10 billion valuation, having pushed it’s December 2020 IPO to 2021. The company allows users to buy-now-pay-later for various goods and services while charging 0% interest or simple interest loans.
According to its registration document, the company remains profitless despite eight years in business, losing $120.5 million in 2019 and $112.6 million in 2020. Nevertheless, the stock should pop and see the firm raise billions of dollars.
Atotech, the German specialty chemicals and equipment maker, like many firms, postponed its 2020 IPO.
In its F-1 statement, the company reported consolidated net losses of $23.7 million in 2018 with$1.2 billion in revenue. In comparison, in the nine months ending in September 2019, the company earned a $12 million net income with $877 million in revenue. Experts predict that the company will raise $1 billion on IPO.
The pet retail firm is looking to raise as much as $800 million. The company left the public markets in 2006 but has decided to return. The company sells everything a pet needs. As a comparison, online pet retailer, Chewy’s soared 107% from when it went public in June 2019. Profitability has improved, with net losses declining from $413 million in 2018 to $103 million in 2019. Revenues in the same period went from $4.39 billion to $4.43 billion.
Southeastern Grocers (SEGR)
Southeastern Grocers operates 420 supermarkets under the Winn-Dixie, Harveys, and Fresco y Más brands and only emerged from bankruptcy in May 2018. The company’s S-1 suggests that its capital expenditure between 2011 and 2015 was excessive, increasing the store base by 256% and destroying economic value. Profitability has been restored as the company has taken a less imperialistic approach to capital allocation. A net loss of $62 million in the 28 weeks ended July 10, 2018, turning into a net income of $205 million in the 28 weeks ended July 8, 2020. The company is looking to earn as much as $500 million.
The opportunities to invest in IPOs do not end there. The pipeline is gushing with supply, and investors should be on the lookout for other investment opportunities. Whether you choose to invest in IPOs or not, companies like Front provide user-friendly ways to allow investors to find new investment opportunities, understand their risk, and take advantage of what should prove to be a fascinating year for IPOs.