It has been a difficult year for investors in Initial Public Offerings (IPOs). Most companies that raised money through public markets in 2021 are trading in a bear market after initial spikes in their share prices.
CNBC last week identified 55 technology companies that debuted in the US this year through an IPO, Special Purpose Acquisition Company (SPAC) or direct listing. Only one – Globalfoundries (NASDAQ:), which produces semiconductor devices – is less than 20% cheaper than the high post-IPO price. Worse, according to the CNBC report, 23 of those companies have lost half or more of their value since they peaked.
Below, we analyzed Rivian Automotive (NASDAQ:) and Coinbase Global (NASDAQ:) – two companies from the hottest market segments this year – to understand which stocks offer a better entry point after a steep sell-off in each of their share prices.
Rivian: New EV Market Darling
Shares of Rivian, a manufacturer of electric trucks and SUVs backed by Amazon (NASDAQ:), are down more than 30% from their post-IPO peak that took the stock as high as $179.40 in mid-November.
Rivian Automotive 300 minute chart.
At one point, the post-IPO buying spree left Rivian worth nearly 90% of S&P 500 companies, including stocks like Boeing (NYSE:), Starbucks (NASDAQ:) and Caterpillar (NYSE:).
However, that dazzling rally quickly unraveled after investors realized the stock was trading at unsustainable levels. Rivian develops an electric pickup and an SUV. It started in September with the delivery of a few trucks, mainly to its own employees. It estimates that annual production at the main plant will reach 150,000 vehicles by the end of 2023.
The stock closed Monday at $118.90 higher than Friday's closing price at $114.66.
While many Wall Street firms have a favorable view of the future of this new EV player, most analysts believe that much of the good news has already been factored into the stock's price. The start-up has a market cap of $105.97 billion at yesterday's closing price per share. This puts the company's valuation higher than legacy automakers Ford (NYSE:) and General Motors (NYSE:).
In a note last week, JPMorgan set a price target of $104 per share for neutral-rated Rivian. The bank's analyst said:
“Our neutral rating balances — on the one hand — extremely attractive sales growth prospects, surprising world-class products for a new manufacturer and tailwind in the structural industry, with — on the other hand — equally heavy investment expected to growth and valuation to be financed that clearly already priced in a lot.”
Goldman Sachs also gave Rivian a neutral rating, with a price target of $94 per share. His note added:
“The auto industry has been difficult to scale for new entrants in the past, including in EVs (e.g. Tesla (NASDAQ:) has experienced delays in product launches). Rivian is still in the early stages of its development, and while the company has a team of industry veterans, the supply chain environment remains challenging.”
Coinbase Profits from Crypto Boom
Shares of the cryptocurrency exchange Coinbase are exhibiting a similar boom-and-bust pattern to that of some of the hottest IPOs of 2021. The stock has stood since then under pressure began to act on April 14. It is currently down about 30% from its early November peak.
Coinbase 300 minute chart.
But this bearish spell goes against the improving growth prospects for the largest cryptocurrency exchange in the US, and the first major cryptocurrency-focused company to go public. With interest from both individual and institutional investors in the peak of the digital coin market, Coinbase is well positioned to capitalize on it.
The latest weakness in the stock price started after Coinbase analysts' forecast for third quarter earnings. While the revenue loss has left some investors skeptical of the growth prospects, there are plenty of reasons to believe that this could be just a bump amid the increasing global adoption of digital assets and other digital assets.
According to JPMorgan analyst Kenneth Worthington:
"We see the crypto markets as sustainable and growing, and expect Coinbase to have the ability to influence and capitalize on this market growth as it innovates."
Added the note:
“We see organic and inorganic growth opportunities leveraging Coinbase's position as a large and trusted exchange with success dependent on hiring the talent needed to develop 'the best' in crypto and to acquire."
Starting point
Both Rivian and Coinbase represent the high-growth segments of the modern economy and offer investors the opportunity to gain exposure to the future growth of each segment.
The latest drop in their stock prices indicates that their valuations have moved closer to their fundamentals. That said, long-term investors should consider building gradual positions in either or both.
