If you feel like there has been an avalanche of new companies hitting the market recently, you're not wrong. The IPO market is the hottest it’s been for years. Indeed, the second quarter saw 62 IPOs raise $25 billion, which according to Renaissance Capital represents the most active quarter by deal count in four years and the most capital raised in five years.
However, from an investor perspective, not all these stocks make compelling investing opportunities. Many new stocks simply rallied too fast out the gate- and are now teetering towards overvalued territory (see, for example Beyond Meat (BYND), Rattler Midstream (RTLR) and Zoom Video Communications (ZM)). So which new stocks are worth a closer look? Here are three stocks that analysts believe have plenty of growth potential ahead and still good offer value for money:
Welcome to Jumia, the first startup from Africa to list on a major global exchange. Africa's leading online shopping giant hit the markets in April this year. And the debut was a big success. According to Renaissance Capital, Jumia delivered a whopping 80.1% return from the $196 million IPO, making it one of the top 10 IPOs so far this year.
In fact, Jumia, often referred to as the ‘Amazon of Africa’ also has another claim to fame. In 2016, the company became the first African startup unicorn, after a funding round from Goldman Sachs, AXA and MTN and others pushed its valuation past the $1 billion mark.
Since the launch, the stock has faced a rocky road with April’s momentous climb quickly followed by a 38% plunge in May. The reason: a short seller report that rattled investors. Citron Research argued that Jumia represented the "worst abuse of the IPO system since the Chinese RTO fraud boom almost a decade ago." However encouraging earnings results prompted a wave of support from the Street, and the selloff seems to have ground to a halt. Shares are currently trading up 4% in the last month.
Five-star Raymond James analyst Aaron Kessler upgraded Jumia from hold to buy post-earnings, with a price target of 36%. From current levels that suggests sizable upside potential of 36%. Indeed, Kessler believes Jumia is now trading at more attractive levels following the May pullback.
The analyst explains: "Our investment thesis for Jumia is based on: 1) we expect robust eCommerce growth in Africa; 2) Jumia is the leading pan-African marketplace and has become a trusted brand with consumers and sellers; 3) we believe Jumia has significant potential beyond its core marketplaces including payments and other services (e.g. food delivery); 4) we expect 50%+ GMV growth and increasing revenue monetization; and 5) we expect scale efficiencies and improving monetization to drive significant EBITDA leverage."
Similarly, Berenberg’s Sarah Simon told investors: “Strong first-quarter results confirm continued progress… For the first time ever, Jumia’s gross profit covered total fulfillment costs, having previously achieved this only in Nigeria.” Her $45 price target indicates upside potential of 70%.
However Simon did add that given the company is so new to the markets “it is obviously not easy to take a firm view on what should be exactly the right price for this company.”
One of the most hyped IPOs of 2019 turned out to be something of a flop. Uber had one of the largest IPOs of the last few months, raising a whopping $81 billion. However shares pulled back on the first day of trading from the IPO share price of $45 to just above $41. According to Renaissance Capital, the company succeeded in “having lost more cash than any IPO ever.”
It took over a month from the IPO for Uber to start trading above its IPO price. Even now the stock continues to hover around $46. But that’s not to say its all doom and gloom for ridesharing service Uber. Quite the opposite.
The stock boasts a ‘Strong Buy’ Street consensus with a top analyst price target of $55 (18% upside potential). And that’s just in the short term. It’s Uber’s long-term potential that really makes the company stand out from the crowd.
“The ridesharing industry has become one of the most transformational growth sectors of the global consumer market over the past five years with Uber establishing itself as the clear #1 player and in our opinion is paving a similar road to what Amazon did to transform retail/ecommerce and Facebook did for social media” cheers Wedbush analyst Ygal Arounian.
He has a $65 price target on the stock, for upside potential of 40%, and explains that “We believe SOTP [sum of the parts] is the best way to value Uber as saying it’s just a ridesharing platform would be undervaluing the value of the entire company which has the DNA to become a game changing consumer distribution ecosystem over the coming years.”
Indeed, a core tenet of his Uber bull thesis is around the company’s ability to morph its unrivaled ridesharing platform into a broader consumer engine. That’s with Uber Eats and Uber Freight “just scratching the surface” of the full monetization potential that the company is set to demonstrate over the next decade. So watch this space.
TransMedics has the potential to make an enormous difference to the world of healthcare. The company, which specializes in transporting organs, hit the markets back in May with an IPO that grossed nearly $105 million. Since then, TMDX has soared from its IPO price of $16 to its current share price of $29.
What’s exciting about TransMedics is that it transports organs in near-living conditions. One year ago the company won pre-market approval from the FDA for its OCS Lung transplant device for standard double-lung transplantation procedures, while in Europe the OCS Heart and OCS Lung devices are already on the market.
Cowen & Co analyst Josh Jennings has a buy rating on TMDX with a bullish $40 price target (38% upside potential). He comments "TMDX's Organ Care System (OCS) is revolutionizing the organ preservation market from cold storage to warm ex-vivo perfusion.”
The analyst believes Transmedics is “filling a unique white space in transplant medicine and creating an $8B market.” And with multiple clinical and operational catalysts on the horizon, he expects OCS adoption and utilization trends to soon hit an inflection point.
Meanwhile JP Morgan’s Robbie Marcus calls the company’s organ transplant system ‘disruptive’ and forecasts a potential annual growth rate of 70% for TMDX over the next five years.
