A view of the Fearless Girl statue wearing an F45 Training hat.
Noam Galai/Getty Images
Most initial public offerings from 2021 have performed badly, and Jefferies suggests that 13 from that group are worth another look.
Last year was a record for IPOs, with about 400 companies using a traditional offering to go public. Only 12% of the 400 offerings are trading above their IPO prices as of Wednesday’s close, according to Renaissance Capital.
The lackluster performance is one reason—along with inflation, recession fears and broad market volatility—that the IPO market in 2022 has slowed significantly. New-to-market stocks continue to be negatively impacted by “myriad headwinds” including supply-chain issues, Covid-19 as well as inflation, wrote Jefferies analyst Randal Konik in a June 17 note.
Konik initially came out with his list of 13 IPOs in January, arguing that a healthy consumer backdrop boded well for the growth of those businesses. Five months later, the consumer is still strong, he wrote. The macro-environment remains uncertain but Konik believes that “multiple contractions across the group warrant additional investor interest and represent attractive entry points” for the stocks on his list. He expects revenue for the group to grow on average by 22% annually to fiscal 2023 from fiscal 2021, and adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, to gain by 25% annually for the same period.
All but one of the 13 stocks Konik selected used a conventional IPO to go public in 2021. Only Holley (ticker: HLLY
), an auto-parts maker, merged with a special purpose acquisitions company, or SPAC. Konik retained his “Buy” rating for all of the stocks in the group except for Traeger (COOK), a maker of specialized grills. Lastly, nearly all of the stocks on his list are below their IPO prices. Only European Wax Center (EWCZ), a franchiser and operator of hair-removal salons, is trading above its $17 offer price. It changed hands Thursday at $20.98.
The business models and profitability of the 13 stocks remain intact, Konik wrote. His picks have “large and growing” total addressable markets, or TAMs, with each business in a strong position to gain share, Konik wrote. He pointed to European Wax and Mister Car Wash ( MCW
), a car-wash chain. Both businesses currently have single-digit-percentage market share within their industries, which are growing at healthy rates, Konik wrote. He maintained his price target of $41 for European Wax, and $32 for Mister Car Wash.
Konik sees the most upside, based on his price targets, with five stocks: F45 Training Holdings (FXLV), a fitness franchiser; aka Brands Holding ( AKA
), which acquires fashion brands geared to millennials and Gen Z consumers; Torrid Holdings (CURV), a retailer that targets the plus-sized women’s clothes market; Brilliant Earth Group (BRLT), a supplier of conflict-free diamonds; and stove maker Solo Brands (DTC). Konik reduced his price target for aka Brands stock—which closed at $2.93 Thursday—to $15 from $22, but maintained the price targets for F45 at $25, Torrid at $14, Brilliant Earth at $16, and Solo is at $15.
Endeavor Group Holdings (EDR) also made Konik’s list. Endeavor owns properties such as Ultimate Fighting Championship, or UFC; IMG, a sports, fashion, events, and media company; and entertainment agency William Morris Endeavor Entertainment or WME. Konik singled out UFC, which is broadcast in more than 160 countries, has about 625 million fans, 90% of whom are under 45. The asset has rapid growth, strong global appeal and attractive demographics. “UFC is a big deal,” said Konik, who kept a $41 price target for the stock.
Other retailers that made Konik’s top 13 include Arhaus (ARHS), which designs and sells home furnishings, and Lulu’s Fashion Lounge Holdings (LVLU), which sells women’s clothing, shoes and accessories. Konik expects both to gain share in their respective markets. He maintained a price target of $13 on Arhaus stock, and a $26 price target on Lulu’s stock.
Traeger, which offers wood-pellet grills that sell for between $600 to $3,800, is the only stock on the list with a Hold rating. Traeger initially received a bounce from Covid-19, but its growth after the virus is in question. Konik’s slashed his price target for Traeger stock—which ended Thursday at $4.91—to $5 from $36.
Xponential Fitness (XPOF) is another fitness company to make the list. Xponential has a growing studio footprint, Konik said. He maintained the stock at $30.
Holley, an auto-parts maker, has a “substantial, untapped TAM,” producing $700 million in 2021 revenue. Konik estimates the U.S. auto aftermarket industry has about $30 billion to $40 billion in revenue. He maintained his $18 price target on the stock.
Write to Luisa Beltran at [email protected]
