A Deeper Look At 5 Recent IPOs

Genia Turanova's picture

Monday, January 28, 2019 - 2:30pm

by Genia Turanova

It's been hard not to notice how slow this year has been when it comes to bringing new companies to the market via initial public offerings (IPOs). 

Last quarter's market selloff plus government shutdown-related staffing issues at regulatory agencies such as the Securities and Exchange Commission are largely to blame. As of last Friday, Jan. 18, only three companies had gone public so far this year, with another expected to make its debut on Jan. 25. In January 2018, by contrast, 20 companies had IPO-ed.

This pace puts the IPO market of 2019 well behind the rate needed to match or exceed the breakneck activity of 2018 when 190 companies went public. 
But this does not mean we cannot learn or benefit from the IPO market -- these 190 recently-minted public companies offer a lot of new ideas and fresh profit opportunities. 

Because of the sheer number of these fledgling companies, I had to first narrow down my area of interest. At this time, I'm focusing on the consumer discretionary sector. With numerous innovations hitting the consumer market, I thought it would be interesting to see how well these companies are being received by the investing public. 

Hence, today's screen consists of consumer discretionary companies that went public within the past 12 months. This set of 21 companies has been further screened to best-performing IPOs -- the ones that have done best since the days of the offerings until Friday, Jan. 18, 2019. And to make these companies' returns more comparable, I've added another column, 2019 year-to-date return, also as of Jan. 18. 

The Results
Here are the top five. 

FTM IPO screen

Interestingly enough, three of these top five performers reflect the initial offerings for American Depositary Receipts, or ADRs, of China-based companies. 

The largest company of these three, and also the largest on this list, is Pinduoduo (NYSE: PDD), an e-commerce company backed by Chinese intent giant Tencent (OTC: TCEHY). Note that, after the IPO, Tencent is the largest single holder of PDD, with a 17.8% stake. 

Buyers on Pinduoduo's platform are able to share product information on Tencent's social networks and receive discounted pricing when their social contacts make group purchases. Buyers are also given incentives, such as free products. Thanks to this approach, and to PDD's relationship with Tencent, PDD is able to capitalize on the power of social networks. In just three years, this company has already attracted nearly 350 million active buyers -- about 60% the size of the active-buyer list at Alibaba (Nasdaq: BABA), China's largest e-commerce retailer. 

A young company, PDD is able to grow fast -- as of March 2018, its number of active buyers were up four-fold from a year earlier. Still, it's not profitable yet (it will have lost money in 2018 and will make only $0.08 per share, at best, in 2019). It's an interesting company with a stock valued to perfection. 

The other two Chinese companies on the list are much smaller. 

With a market cap of only $130 million and a post-IPO rally of 71%, Ambow Education (Nasdaq: AMBO), a provider of online and offline educational services, looks too speculative to be of interest to us over at Fast-Track Millionaire at this time. 

Mogu (Nasdaq: MOGU) operates as an online clothing platform, offering fashion, beauty and lifestyle products. MOGU also functions as a media company of sorts, with live-stream fashion-related videos, fashion tips and product reviews. Expected to turn profitable in 2019, Mogu looks interesting, but its shares are fairly priced at the moment. 

My Favorites
For my money, Seattle-based Avalara (Nasdaq: AVLR) tops the list: Avalara is, essentially, a tech company -- and last year was a strong one for many technology companies, especially those related to the cloud. 
So why is AVLR classified as a consumer company? Probably because its cloud-based software is all about sales tax. As the rules of internet taxation change, and as a company enters a new market with a new set of sales taxes -- and as these taxes change, -- AVLR's software makes it easy for retailers of any size to account for all of these challenges and changes. 

AVLR will continue to benefit from the growth of online commerce. As I recently told my Fast-Track Millionaire subscribers, let's remember this name for the future. 

Finally, small but fast-growing, Lovesac (Nasdaq: LOVE) isn't just another furniture retailer. Its modular furniture is patented (the "sactionals" system, as LOVE calls it, is highly adaptable to a variety of spaces and needs). It also specializes in accessories, including bean chairs filled with proprietary beans. The company isn't profitable yet, however. I'll be watching how fast LOVE grows over the next few quarters, which will tell us a lot about its potential.

Final Thoughts
Please keep in mind that the investing ideas I present here are intended to provide a good starting point for further research. As with any tool, my Fast-Track Millionaire stock screens should not be used in isolation. You need to evaluate other fundamental characteristics of every potential investment opportunity to determine if it is right for your portfolio.

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Genia Turanova does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.