Value investors are always scanning the horizon for undervalued stocks. UBS points out that high volatility against an uncertain backdrop characterizes 2023. There is no doubt that traders who seek out high volatility are also seeing astronomical opportunities created through fear and wild swings in the market.
Being greedy when others are fearful, the Warren Buffet way, is perhaps not for everyone. Besides, the methodologies used to screen the above mentioned opportunities vary vastly. In this article, we will focus on potentially undervalued IPO stocks.
Companies that raise finance through their initial public offering (IPO) are often in the higher risk, higher reward category. Yet their performance metrics along with co-inciding industry trends are used to gauge the performance potential of the stock. The benefit investors may face during turbulent times and in a classic bear market, is that IPO stocks in particular can often be quite undervalued.
The methodology for determining undervalued stocks does take into account the valued opinions of hedge fund managers around the world, but also seeks to look at IPO stocks that could be “overlooked by hedge funds and backed by strong market trends”. Researchers assert that durability and competitive advantage ought to influence stock screening. As such, when exploring the list of potentially undervalued IPO stocks below, both quantitative and qualitative perspectives should underpin an investment rationale.
10 Potentially Undervalued IPO Stocks
#1. Hertz Global Holdings, Inc. (NASDAQ:HTZ)
Hertz Global Holdings, Inc. (NASDAQ: HTZ) is a car rental company based in the U.S. and run by Stephen M. Scherr, the CEO. The company operates its car rental services through rental locations, including Thrifty Car Rental, Dollar rent a car, and Firefly Car Rental. Analysts, e.g., Christopher Stathoulopoulos from Susquehanna, believe that more people should pay attention to the stock because travel demand will normalize. In the third quarter ending September 2022, about 47 hedge funds held stakes in Hertz Global Holdings, Inc. (NASDAQ: HTZ). At the end of Q3 2022, Knighthead Capital was the leading stakeholder in the company.
With the Vanguard Group and Oaktree Capital Management already being major shareholders, one might contend that “the rush is over”, yet Hertz, like many tourism companies, are still relatively subdued thanks to a pandemic hangover.
#2. PlantX $PLTXF (OTC)
PlantX Life, Inc. is an eCommerce company founded by Sean Dollinger, which announced it’s IPO in 2020 at the peak of the pandemic. It is headquartered in West Vancouver, Canada. Currently headed by Lorne Rapkin CPA, the CEO, PlantX’s platform is generally a one-stop outlet for plant-based products. It boasts fast-growing category verticals enabling it to offer clients across North America over 5,000 plant-based products. Inspired by the Trader Joes model, the company also has its own brands which enjoy higher margins. These brands include LittleWest, Portfolio Coffee and Xmeals.
PlantX grew to become a leader in the vegan online ecommerce, taking care of fulfillment for top brands in its niche. In fact, employees across corporate America at well known companies such as Tesla, Apple and Netflix are talking about PlantX brands added to their complimentary meals, signs of a supply chain which is developed in a very smart way. Sean Dollinger worked with Ryan Cohen from Chewy.com: together they came up with the strategy to build platforms and communities centered around one category. Dolinger and Cohen were 50/50 partners in three .coms, where together they formed this strategy that has now been proven over and over again with both of their respective recent ventures Chewy.com & Namaste Technologies impressing the public markets.
Given this track record, it would be hard for anyone to bet against Dollinger: his last startup reached a $1Billion valuation in just two years. The PlantX $PLTXF (OTC) is clearly a stock to watch as the company is set for massive expansion.
#3. Peloton Interactive, Inc. (NASDAQ:PTON)
Peloton Interactive, Inc. (NASDAQ: PTON) is a media firm based in the U.S. running an interactive exercise and fitness platform headed by Barry McCarthy, the CEO. 45 hedge funds had stakes in Peloton Interactive, Inc. (NASDAQ: PTON) at the end of the third quarter. At the end of Q3 2022, Darsana Capital Partners remained the leading stakeholder in the firm. Analysts point out the fact that Peloton Interactive’s shares are still down 92% from their all-time high set in January 2021 as a good opportunity to invest. Peloton Interactive has slowly been getting more appealing to investors due to lower share prices – it justifies a closer assessment.
#4. DoorDash, Inc. (NYSE:DASH)
DoorDash, Inc. (NYSE: DASH) is an online delivery company based in the United States. The company, founded in 2013 and headquartered in San Francisco, is currently under the leadership of Tony Xu. It held its IPO in 2020 using the DASH symbol. Jason Helfstein, an Oppenheimer analyst, forecasted DoorDash, Inc. (NYSE: DASH) to Outperform with a price target of $70. He believes the firm’s U.S. restaurant margins will rise to 6.1% from 5.7% from 2020-2025. The U.S. non-restaurant and international contribution margins will also rise to -2.4% from -13.4%. If the projected numbers are anything to go by, DoorDash, Inc. (NYSE: DASH) then investors could be in for a good ride.
The Vanguard Group (6.96% stake), Morgan Stanley and T. Rowe Price Associates Inc. are all in on this stock, with BlackRock Fund Advisors and it’s 2.5% stake demonstrating a broad based consensus among analysts. It is possible that this opportunity has already gone too far up the mainstream and is nowhere near being a best-kept secret.
#5. Stripe (Anticipated IPO in 2023)
Stripe, headed by CEO Patrick Collison, is a good stock to invest in. Its position as the number one payment processor globally makes it a good long-term bet. A recent prediction was made that Stripe would be listed at a valuation of $100 billion. Stripe forecasts to hold its IPO sometime in 2023, and investors are gearing up to get a piece of Stripe! The firm combines all required to build apps and websites that accept and send payments globally. Stripe’s products power payments for subscription businesses, marketplaces, in-person and online retailers, software platforms, etc. With Stripe forecasted to grow in value, you should invest in the firm when it holds its highly anticipated IPO!
Beyond technological superiority, perhaps the greatest advantage of Stripe is the fact that so many Paypal clients are dissatisfied. When the market leader (Paypal) has a 1.3 average review from almost 25K clients on Trustpilot, it is a classic situation where the competition is making it easy for a brand to thrive and take market share.
#6. Tiktok (Anticipated IPO in 2023)
TikTok, the Chinese video-based company, looks as promising as ever and hopes to still give investors a chance to enjoy fantastic returns from its expected stock. Under the helm of CEO Shou Zi Chew, it hopes to hold its IPO in 2023. However, it won’t be based on an American exchange owing to ongoing hostility between the United States and China. Thus, TikTok will list on the Hong Kong or Shanghai exchanges. One promising aspect is that the platform still pulls in more numbers while Twitter and Facebook’s numbers are falling. TikTok’s IPO is an event that will have investors clamoring for a piece of the company’s stock. The best part? The platform is still expected to grow significantly unless regulatory issues in the U.S. continue to escalate.
Downside regulatory risks: The Trump regime were first to threaten TikTok with a shutdown. Now, the Biden administration is mimicking that tune. This means that there is a chance that investors may at some point in the future see a TikTok that excludes the U.S.A – which is likely to be a substantial portion of it’s revenue and user base.
#7. Fiverr (NYSE: FVRR)
Micha Kaufman is at the helm of the most promising company, Fiver International. Fiverr International (FVRR 8.14%) is a promising stock in the tech sector that fell 72% towards the end of 2022. Fiverr connects sellers and freelancers with people looking to work with buyers and freelance workers. It displayed steady growth before the Coronavirus pandemic. Revenue soared in 2020, and the stock price skyrocketed. Wall Street forecasts the Fiverr stock to gain by 61% during this year, and to some, it looks like a great buy for 2023. With all the promising numbers highlighted above.
Beware of more downside risks: Given the spectacular crash in the Fiverr share price, it is understandable why some investors may consider it a relative bargain. However two significant downsides in Fiverr include the fact that they paid high prices for their acquisitions as well as the fact that Upwork is more trusted by corporations – and are quickly closing the gap which Fiverr created in the early days with it’s “gig” approach.
#8. Rivian Automotive (NASDAQ: RIVN)
Rivian Automotive, Inc., an E.V. manufacturer, produces vehicles for the corporate delivery van and consumer markets currently under the leadership of R.J. Scaringe. Baron funds, in its fourth quarter 2022 investor letter, highlight the promising nature of the Rivian Automotive (NASDAQ: RIVN) stock. It believes Rivian’s liquidity and competitive position within the E.V. industry will continue growing impressively due to its industry partnerships and an integrated technology approach. Although currently up by 15%, Rivian (RIVN 8.52%) stock is in recovery mode after its disappointing performance in 2022. Rivian may not be a super appealing stock, but it is treading in the right direction regarding rising profitability. It is easy to understand why many analysts like this stock.
#9. Reddit (Anticipated IPO 2023)
During the 2021 meme stock craze, Reddit boomed as an investing platform under the leadership of Steve Huffman. Reddit, one of the most popular social media platforms, plans to go public in 2023, with over 1.2 billion users and about 52 million active daily users. Meme investors remain optimistic about Reddit and what it means for the average investor. With such investors in mind, Reddit, with a potential valuation of about $10-$15 billion and an IPO scheduled for mid-2023, offers great potential. Reddit’s IPO slated for 2023 will allow investors to invest in one of the most promising and most anticipated stocks in the market.
Being one of the biggest websites in the world, including to be on the “top 5 websites by traffic” in numerous countries, Reddit has a scale and brand recognition like few others. Considering the limitations of its current monetization strategy, upside potential can be substantial.
#10. Instacart (Anticipated IPO 2023)
Instacart, under the leadership of Fidji Simo, postponed its IPO in 2022 in October but didn’t give clear reasons for it. Analysts believe the likely culprits are poor IPO and shaky stock markets. That was bad news for Instacart, as its most recent funding round in 2021 was valued at more than $39 billion. By 2022, that figure had dropped nearly 40% to $24 billion. Instacart is also cutting costs, trimming its workforce to impress investors in 2023. Even as other Covid pandemic-era market darlings have faltered, Instacart has seen rapid growth. The company reported 2021 revenue of $1.8 billion, a 20% increase over the previous year. The above numbers show why Instacart is a good platform in its peer group and a potential investment opportunity.
Final Take Away
Investing is a risky business and is not for everyone. Too many analysts now say “buying the dip won’t work”. That is why identifying potentially undervalued IPO stocks is indeed a top priority for value investors who are seeking out lucrative opportunities in 2023. With market volatility and uncertainty, it’s essential to do your due diligence before making investment decisions.
In some cases, it is easy to see what analysts found appealing in the above list when assessing potentially undervalued IPO stocks. Some may offer promising growth potential, however you should always seek professional advice when making these decisions. As always, be mindful of penny stock traders who send small stocks soaring. IPO stocks are particularly attractive targets for penny stock traders as their volume often makes it easy to manipulate and prone to this.