4 Overvalued Recent IPOs to Avoid in September

Last year was a great year for IPOs thanks to a low-interest-rate environment and the quick and low-cost listing options such as special purpose acquisition companies (SPACs). In total, 480 companies went public last year. The number has been even higher so far this year. According to Stock Analysis, there have been 742 IPOs so far this year.

However, the Federal Reserve could raise interest rates as early as 2023, and recently indicated its willingness to reduce asset purchases before the end of the year. In addition, Investors’ concerns over the economic recovery due to the resurgence of COVID-19 cases and high inflation could pose a threat to many recently listed stocks.

Investor optimism over recently-listed stocks Robinhood Markets, Inc. (HOOD), SentinelOne, Inc. (S), Full Truck Alliance Co. Ltd. (YMM), and Traeger, Inc. (COOK) has helped them reach price levels that don’t justify their recent financial performance and growth prospects. So, these stocks are best avoided now.

Robinhood Markets, Inc. (HOOD)

Zero-commission trade pioneer HOOD allows its users to invest in stocks, exchange-traded funds, options, gold, and cryptocurrencies via its platform. Its shares rallied to hit their all-time high of $85 on August 4, after falling 8% on its stock market debut on July 29, 2021. However, it has declined significantly since then.

HOOD’s revenue increased 131% year-over-year to $565.33 million for the fiscal second quarter that ended June 30, 2021. However, the company’s operating expenses increased 169% year-over-year to $500.73 million. In addition, its net loss came in at $501.66 million compared to a net income of $57.58 million in the prior-year quarter. Also, its loss per share came in at $2.16 compared to an EPS of $0.09 in the year-ago period.

In terms of forward P/S, HOOD’s 18.09x is 466.1% higher than the industry average of 3.19x. Likewise, the stock’s forward P/B of 70.21x is 6,129.2% higher than the industry average of 1.13x.

For fiscal 2022, HOOD’s revenue is expected to increase 36.9% year-over-year to $2.73 billion. However, analysts expect its EPS to remain negative in fiscal 2021 and 2022. The stock has lost 11.1% over the past month to close yesterday’s trading session at $41.95.

HOOD’s poor prospects are apparent in its POWR Ratings. The stock has an overall grade of F, equating to a Strong Sell rating in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an F grade for Sentiment, Growth, and Value, and a D grade for Stability and Quality. Click here to see the additional grades for HOOD (Momentum). It is ranked #139 out of 147 stocks in the D-rated Software - Application industry.

Click here to check out our Software Industry Report for 2021

SentinelOne, Inc. (S)

Cybersecurity provider S’ Singularity Platform delivers artificial intelligence (AI)-powered autonomous threat prevention, detection, and response capabilities across an organization's endpoints and cloud workloads, enabling seamless and automatic protection against a spectrum of cyber threats. Its shares surged 21% on its market debut on June 4, 2021.

S’ revenue increased 38% year-over-year to $45.75 million for the fiscal second quarter ended July 31, 2021. However, its non-GAAP operating expenses increased 114.7% year-over-year to $73.36 million, while its non-GAAP net loss increased 115.5% to $46 million. Also, its non-GAAP loss per share came in at $0.38 compared to $0.62 in the prior-year quarter.

In terms of forward P/S, S’ 94.45x is 2,186.2% higher than the industry average of 4.13x. Likewise, the stock’s forward EV/S of 78.12x is 1,797.4% higher than the industry average of 4.12x.

Analysts expect S’ revenue to increase 72.9% year-over-year to $327.45 million in fiscal 2023. However, the company’s EPS is expected to remain negative in fiscal 2022 and 2023. It closed yesterday’s trading session at $72.75.

S’ POWR Ratings are consistent with this bleak outlook. The stock has an overall grade of D, equating to a Sell rating in our proprietary ratings system. In addition, the stock has a D grade for Growth, Stability, Value, and Quality.

Click here to see S’ grades for Sentiment and Momentum as well. S is ranked #23 out of 25 stocks in the D-rated Software - Security industry.

Full Truck Alliance Co. Ltd. (YMM)

Based in Guiyang, China, YMM operates a digital freight platform that connects shippers with truckers to facilitate shipments across distance ranges, cargo weights, and types. In addition, it offers freight listing, matching, brokerage services, online transaction services, and various value-added services. It had raised roughly $1.60 billion during its U.S. IPO on June 22, 2021.

Several law firms have launched an investigation against YMM, alleging that its public statements were materially false and misleading at all relevant times and negligently prepared. For example, it allegedly failed to disclose that Full Truck's apps Yunmanman and Huochebang would face an imminent cybersecurity review by the Chinese government.

For the second quarter that ended June 30, 2021, YMM’s revenue increased 100.9% year-over-year to $173.30 million. However, its operating expenses increased 250.2% year-over-year to $490.29 million, while its net loss increased 558.7% to $303.30 million. The company’s adjusted loss per ADS increased 113% year-over-year to $0.08.

In terms of forward non-GAAP P/E, YMM’s 716.06x is 3,541.5% higher than the industry average of 19.66x. Similarly, the stock’s forward P/S of 26.35x is 1,595.3% higher than the industry average of 1.55x.

The company’s revenue is expected to increase 84.3% year-over-year to $1.22 billion in fiscal 2022. However, analysts expect YMM’s EPS to remain negative in the current quarter ending September 30, 2021. The stock has lost 27% since hitting its 52-week high of $22.80 on June 22, 2021, to close yesterday's trading session at $16.65.

YMM’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall grade of D, which translates to a Sell rating in our proprietary ratings system. In addition, it has a D grade for Value.

Click here to see YMM’s ratings for Quality, Growth, Stability, Momentum, and Sentiment as well. YMM is ranked #111 in the Software - Application industry.

Traeger, Inc. (COOK)

COOK designs, sources, sells, and supports wood pellet fueled barbeque grills for retailers and distributors. Its wood pellet grills are internet of things devices that allow owners to program, monitor, and control their grill through its Traeger app. The company also produces a library of digital content. Its shares opened more than 20% above its initial public offering price on July 29, 2021.

For the second quarter that ended June 30, 2021, COOK’s revenue increased 39.1% year-over-year to $213 million. However, its operating expense increased 109.2% year-over-year to $80.37 million, while its total liabilities increased 18.1% to $607.60 million. The company’s adjusted net income decreased 40.8% year-over-year to $16.48 million.

In terms of forward EV/EBIT, COOK’s 196.61x is 1,440.5% higher than the industry average of 19.66x. Likewise, the stock’s forward P/CF of 66.97x is 427.3% higher than the industry average of 12.70x.

COOK’s revenue is expected to increase 25.3% year-over-year to $957.67 million in fiscal 2022. However, analysts expect COOK’s EPS to remain negative in the current and next quarters. The stock has lost 11.7% over the past month to close yesterday’s trading session at $23.10.

It’s no surprise that COOK has an overall grade of D, which equates to a Sell rating in our POWR Ratings system. In addition, the stock has a D grade for Growth, Value, Stability, and Quality.

We’ve also graded COOK for Sentiment and Momentum. Click here to see all of COOK’s grades. COOK is ranked #63 out of 64 stocks in the Home Improvement & Goods industry.

HOOD shares were trading at $42.38 per share on Friday afternoon, up $0.43 (+1.03%). Year-to-date, HOOD has gained 21.71%, versus a 18.83% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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