An IPO is often the first time that early investors get to offload shares and this can cause the price to fluctuate. It is also common that there is a lot of hype surrounding IPOs, further adding to volatility.
Although there can be a lot of risks, investing in newly public companies based on fundamentals rather than speculation can reward shareholders greatly. The risk versus reward needs to be accounted for and this is different for each person.
At MyWallSt we prefer to wait a few quarters to let the dust settle and to be able to gain a full understanding of the company, but these are 3 companies we are keeping our eye on for the future:
1. Virgin Galactic
Virgin Galactic Holdings (NASDAQ: SPCE) are the first public company in “Commercial Human Space Flight”. Morgan Stanley estimates the commercial space industry could generate more than $40 trillion in revenue by 2040 The company went public on the New York Stock Exchange through a reverse merger with Social Capital Hedosophia Holdings on the 28th of October 2019. ‘The stock has tumbled from its IPO price of $10.74 a share but retains a market cap of $1.5 billion. In the words of Richard Branson…:
“A big business starts small.”
Virgin Galactic’s current CEO is George Whitesides, who was previously Chief of Staff at NASA. Consequent to his departure from NASA, he was granted the Distinguished Service Medal, the highest award NASA offers. He also served as chair of the FAA’s Commercial Space Transportation Advisory Committee, as well as testifying on space policy before the United States Senate and House of Representatives.
Richard Branson is the founder and owns a 51% stake in the business, with a proven track record. Chamath Palihapitiya is the chairman of Virgin Galactic and alongside Social Capital invested $100m. This investment by large stakeholders creates an incentive for management to execute the vision for space travel. In addition, Boeing has also bought a 1% stake in the business.
603 customers have already signed up with over $80,000 in deposits collected. The flight comes at a hefty price tag of $250,000 per seat. Virgin Galactic plans to start with 16 flights a year in 2020, scaling to 270 flights a year by 2023 with its fleet of five vessels. There is a path to profitability provided management can execute their vision. In 2023 they plan to bring in $600m of revenue and generate a profit of more than $430m. The company is yet to turn a profit though, investing heavily in infrastructure instead.
Virgin Galactic is currently in discussions for new spaceports in the UAE and Italy. This could also transform conventional commercial air travel by significantly reducing travel times, another avenue that Virgin Galactic are willing to explore and expand into.
There is huge potential and upside for this business as the only pure space tourism play and it is already ahead of the game. However, there are competitors such as Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin. With first-mover advantage, experienced management and an emerging industry this company has a lot to offer.
2. Beyond Meat
Beyond Meat (NASDAQ: BYND) are the producers of plant-based meat substitutes. The company went public on 1st May 2019 at $25 a share. The stock shot up more than 500% after its IPO but has retreated since then.
There is a large addressable market, with investment firm UBS projecting the market for plant-based protein and meat substitutes to expand and reach $85 billion by 2030.
The company is led by founder and CEO Ethan Brown and has its headquarters in California. Beyond Meats’ core mission is to address these four global issues: human health, climate change, constraints on natural resources, and animal welfare.
The Beyond Burger has proved to be the most successful of their range of sausage, beef, and burgers. Since the IPO, the number of retailers stocking Beyond products has increased internationally from 1,000 to 6,000, according to their latest quarterly report. Revenue has increased by 250% year over year, and the company posted quarterly profit of $4.1 million.
Although Beyond Meat products can now be found in global powerhouses such as Subway and McDonald’s, who are testing a short trial of the burgers in Ontario, Canada. The company is facing threats from competitors such as Impossible Foods. This space will not be a “winner takes all” but the question is can Beyond Meat live up to its rich valuation.
Peloton (NASDAQ: PTON) are an “interactive fitness platform” or a boutique fitness company with 1.4 million members. Peloton had a rocky start following its September IPO, but its stock has steadily increased, and the company maintains a market cap of just under $10 billion.
They sell exercise bikes and treadmills with a digital screen that is attached to provide the user with an in-home fitness experience. This provides classes that are subscription-based, connecting to live spinning classes. The bikes start at $2,245 while the treadmills are more expensive with a starting price of $4,295. They also sell accessories and athletic apparel.
In the first quarter 2020 report, both subscribers and revenue increased by more than 100%, while the company boasts an impressive retention rate of 94%. However, Peloton is still unprofitable and in early December saw its stock slide following a controversial Christmas commercial which many saw as sexist.
Peloton is growing through the acquisition of bike manufacturers such as Tonic and by expanding into international markets which includes the UK and Canada. Innovation is key and Peloton is enabling a better user experience by using other technologies such as Chromecast and Roku (NYSE: ROKU) to connect to TV.
A major question mark is the ability of peloton to survive in a recession as it is a luxury product but not a niche.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
This article was written by one of our MyWallSt contributing writers.