We Usually Don’t Dabble in IPOs that Have Just Come Public. But these 3 are Old Enough to Be Fair Game.
My guess is that, when history is written, 2019 will be known for two things: a pretty solid bull market year, and a time when many high-profile IPOs (initial public offerings)—including a couple of future blue-chip stocks—came public. It’s why the best IPOs of 2019 have my full attention. More on those in a bit.
Interestingly, as of a few days ago, this year hasn’t been a bonanza for the IPO market in general—there have been 90 issues that have come public overall. That means we’re on pace for about 160 pricings, which is lower than last year (192 pricings) and much lower than the recent peaks seen in 2013 and 2014 (222 and 275, respectively).
However, as mentioned above, 2019’s new issues have included some big boys—those 90 pricings totaled $40 billion, which is up 35% from this time a year ago and is on a pace to be the second highest of the past decade.
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Personally, I usually don’t get involved in IPOs for at least the first few weeks of their life, if not longer—I’ve found that even the “good” performers tend to do well for a month or two before having a post-IPO droop. The sustained advances usually take a few months to set up (sometimes a few years!).
Of course, there is the occasional time I’ll dive into a recent IPO, but either way, I make it a point to regularly keep an eye on and get to know most well-traded new issues since so many of them end up being new leaders sooner or later.
So, today, I’m going over my three favorite new issues I see today—they aren’t necessarily all buyable right this second, but these are the names I’m keeping a close eye on for new buying in the weeks ahead.
Names are presented in alphabetical order. And, if you like this, I could follow up with another three I’m keeping an eye on in my next Cabot Wealth Daily column. Let me know!
The Best IPOs of 2019 (So Far)
Best IPOs of 2019: Beyond Meat (BYND)
Story: Beyond Meat is positioned as one of the leaders in the rapidly growing plant-based meat industry. We know many skeptics make fun of it and point to increased competition (which is a fair point), but the big idea here is the size of the market—based on comparisons to the plant-based dairy market (13% of all dairy sales are now plant-based), the plant-based meat industry could be worth north of $125 billion within a decade, driven by direct buying (we like that Beyond is sold in the meat section of most grocery stores) and foodservice (Famous Dave’s PizzaRev, Del Taco, Tim Hortons and others use Beyond’s products). That pie (cow?) will be split many ways, but even so, this company should grow manifold in the years ahead.
Numbers: Beyond is small ($40.2 million of revenue in Q1), but we love the triple-digit revenue growth (up 215% in Q1) and the fact that the company isn’t far from profitability (analysts see a small profit in 2020). Also interesting, in the last quarter, Beyond’s foodservice revenues expanded nearly six-fold, pointing to a big ramp.
Chart: BYND has been the best IPO of 2019 so far, booming from 65 at the close of its first trading day (in early May) to as high as 200 this week. One could argue that the past four weeks represented some sort of flag formation, making any decisive breakout above 200 buyable. That’s fine if you want to take a swing at it with a loose stop, but I’m looking for a longer rest period that possibly lets the 50-day line (now at 135 and rising) catch up.
Best IPOs of 2019: CrowdStrike (CRWD)
Story: Early on this year I highlighted (and bought one in the Cabot Growth Investor advisory’s Model Portfolio) a couple of “new age” cybersecurity stocks, and they’ve been solid winners this year. And CrowdStrike fits right in that bucket—the firm was built from the ground up to help enterprises with endpoint security (i.e., securing all of the devices that connect to their network), using a shared cloud infrastructure that takes advantage of crowdsourced data (hence the name) to constantly improve its platform’s effectiveness against ill-doers. More than 40% of the Fortune 100 are customers, as are many key government agencies.
Numbers: CRWD doesn’t look like it will turn a profit anytime soon, which is a negative, but it’s outweighed in my mind by the stunning top-line growth—in the just-reported quarter, revenues were up 103%, but more impressive to me is that their annualized recurring revenue (customer pay on a subscription basis) lifted 114%. Even better, a key statistic for subscription firms is same-customer revenue growth, which according to management remains well above 20%.
Chart: There’s not much to analyze here, but CRWD soared when it first came public, formed a nice flag for three weeks and then gapped out to new highs on earnings last week. Honestly, I’m not opposed to a small position here with a loose stop—there’s risk of a steep drop, but I wouldn’t be shocked if CRWD marched higher if growth stocks remain in gear.
Best IPOs of 2019: Elastic (ESTC)
Story: Elastic looks like it could be the next big thing in the Big Data field. The company’s software platform looks to be one of the best in helping companies quickly mine data and get value from it, no matter the type or format. Interestingly, Elastic actually powers some well-known consumer apps (it quickly connects drivers with riders for Uber, and finds potential matches for you on Tinder), and it’s also being used in a ton of security and infrastructure monitoring and forecasting applications. It bills itself as a search company, and in a way, it’s looking to be the Google of enterprise/data search with a platform that boosts efficiencies, security and even enables new offerings.
Numbers: As with the first two new issues, Elastic isn’t profitable and likely won’t be for a while. But in the latest quarter, currency-neutral revenues lifted 68%, billings were up 63%, and perhaps most impressive of all, same-customer revenue growth has topped 30% for 10 straight quarters—a strong sign that, once clients sign up, they expand their usage dramatically going forward.
Chart: ESTC came public late last year (making it a 2018 IPO, technically), held up well during the market meltdown and rallied to 100 in February before suffering its first “real” correction—falling 30% over four months. But the character of the stock has completely changed, with ESTC racing right back to 100 in recent days on huge volume. This one’s on my watch list in Cabot Growth Investor, and I’m not far from starting a half-sized position if shares can chill out a bit.
Now, if you want to know what growth stocks are actually in my Cabot Growth Investor portfolio, you can click here to find out!
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