Perhaps the most exciting aspect of the stock market is its dynamism. The trading environment is in a constant state of flux, whether it’s the daily shifts in price, the longer changes in market trends, or, most exciting for investors, the entry of new stocks into the game. IPOs have always attracted attention, for good reason – they introduce new players, add new variables, and open new opportunities.
But not all IPOs are created equal. Some companies make instant waves while others slide by under the radar. Some companies just don’t impress investors, and fail to sell all the offered shares, while others sell out and have to offer more. And as some stocks make their debut with the wrong pricing – up or down, market forces will make that correction in short order. Investors should love IPOs – and should practice due diligence.
And that’s where research firm BTIG comes in. The firm's analysts have been looking under the hood of several newly public companies. Three of these companies held their public offerings just this past September.
Using TipRanks’ Stock Comparison tool, we lined up the three alongside each other to get the lowdown on what the near-term holds for these IPO players.
Sumo Logic (SUMO)
First up is Sumo Logic, a data analytics company offering cloud-based services in security and operations for business intelligence apps.
Sumo Logic started trading on the NASDAQ index on September 17, with an opening price of $22 per share. That was above the $17 to $21 range expected, and set a strong tone for the IPO. In all, the company sold 14.8 million shares in the initial offering, plus another 2.22 million when the underwriters exercised their purchase option. The sale brought in $374.4 million. Sumo is prime example of a successful IPO, attracting investors and brining the company’s total market cap to $2.19 billion in its wake.
Initiating coverage of this stock for BTIG, 5-star analyst Gray Powell describes SUMO as ‘heavy-caliber.’
“We think that machine data analytics platforms like SUMO’s should benefit as companies increasingly adopt digital transformation strategies. In our opinion, SUMO is well positioned on this theme… it is the only pure play multi-tenant cloud-native company with a focus on the IT monitoring and Security Information and Event Management markets… we see a compelling long-term growth opportunity,” Powell opined.
In line with his bullish comments, Powell rates the stock a Buy, and his $29 price target suggests a 31% one-year upside potential. (To watch Powell’s track record, click here)
In its short time on the public markets, SUMO has garnered 5 Buy reviews and 3 Holds, making the analyst consensus rating a Moderate Buy. The stock is priced at $22.19; it has an average price target of $28.29, giving it a 27.5% upside for the coming 12 months. (See SUMO stock analysis on TipRanks)
Broadstone Net Lease (BNL)
The next stock on our list is a real estate investment trust with a long history in private ownership. Broadstone acquires, for ownership and management, a wide-ranging portfolio of commercial real estate properties occupied by single tenants on long-term net leases. At the end of 2Q20, shortly before the IPO, Broadstone boasted 633 properties, mainly in the US but one in Canada, valued at some $4 billion. The company acquires properties in the healthcare, industrial, office, restaurant, and retail sectors.
In the IPO, which saw stock sales start on September 17, Broadstone opened at $17 per share and sold the 33.5 million shares expected. As in many successful IPOs, the underwriters are exercising their option, buying up an additional 5.025 million shares. The net proceeds from the IPO reached $533.5 million.
In his initiation report for BTIG, analyst Michael Gorman noted Broadstone’s history but was particularly impressed by the stability and diversity of the portfolio.
“The company recently completed its initial public offering but has assembled a 13-year track record of solid cash flows and growth as a private company. Moreover, while BNL does not specifically focus on investment-grade tenancy, it pursues a strategy designed to promote cash flow stability… At both the geographic and tenant-level the company has one of the most diversified portfolios, which is also likely to drive stability,” Gorman wrote.
Gorman’s $20 price target implies an 18% upside for the stock, and supports his Buy rating. (To watch Gorman’s track record, click here)
Overall, Broadstone has a Strong Buy rating from the analyst consensus, and it is unanimous – no fewer than 7 reviewers have given this stock the thumbs up. Shares are currently trading at $16.98, and the $20.71 average price target suggests it has room for 21% growth in the year ahead. (See BNL stock analysis on TipRanks)
Last and least is Snowflake, a software provider in the cloud-based data segment. Snowflake is a Silicon Valley tech company, valued at $67.5 billion. It started trading on September 16, and like the stocks above, its IPO was successful. The company saw investors pick up 28 million shares, at an opening price of $120, plus another 4.2 million purchased by the underwriters. The $3.36 billion raised by the sale made this the year’s largest IPO so far, an impressive feat given the ongoing pandemic crisis.
Since opening at $120 per share, SNOW stock has doubled in price. Investors are clearly gravitating toward this software company. The company estimates >$560 million in revenue for FY21, for 114% growth year-over-year, and forward projections show the top line number hitting $1.75 billion within two years. Indeed, growth rates like that don’t come around every day.
Rapid growth, however, also brings a drawback – investors must wonder if SNOW shares are close to maxing out their value. That is the key factor in analyst Gray Powell’s Neutral rating on SNOW.
The BTIG analyst noted, “We believe SNOW is sitting in front of a very large secular growth opportunity as workloads migrate to cloud environments at an accelerating pace and customers increasingly look to utilize machine data to make better business decisions.” However, “We see limited upside and would await a better entry point on the stock.”
Overall, Snowflake has drawn optimism mixed with caution when it comes to consensus opinion among sell-side analysts. Out of 22 analysts polled in the last 3 months, 9 are bullish, 11 remain sidelined, while 2 are bearish on the stock. With a modest 8.5% upside potential, the stock's consensus target price stands at $265.67. (See SNOW stock analysis on TipRanks)
To find good ideas for IPO stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.