Investing in businesses that go public for the first time can be insanely profitable if you know what to look for… And what to avoid.
Just take a look at what Beyond Meat Inc. (NASDAQ: BYND) did last year…
After opening to the public at $46 on its IPO date last May, the stock soared 420% to an all-time high of $239 per share just 85 days later.
But another popular tech giant, Uber Technologies Inc. (NYSE: UBER), didn’t fare so well…
After selling for $45 per share on its IPO just one week after Beyond Meat went public, Uber shares dropped like a rock.
At one point, shares were down 69.5% – to $13.71. And it’s never traded higher than $47.08 in its public existence.
You see, without the financial statements, calculating the values of new public companies is nearly impossible.
It’s easy to estimate future cash flows, discount them back to the present, and calculate the intrinsic value of a company like Coca-Cola Co. (NYSE: KO), who’s been trading on the New York Stock Exchange since 1920.
But you need different ways to value new stocks that have been trading on the public markets for less than a month…
So today, I’m going to show you exactly what I look for when determining whether or not to buy a new stock when it debuts on the open market.
I’ll even show you one company I’m buying right now… And one stock I’ll be sidestepping for the time being.
Let’s get the one you should avoid out of the way first…
IPO #1: Asana (NYSE: ASAN)
Rating: Avoid
Investors should refrain from starting a position at current levels in the newly public software company Asana.
Asana, a San Francisco-based software provider for tracking group projects, enjoyed a 37% rally on its first trading day (on Sept. 30) with shares settling at $28.80.
That gave the company a $4.86 billion market valuation. And after-hours traders pushed the stock another 3% higher to $29.65.
The company was given a $21 reference price before it listed directly on the NYSE.
The company definitely has value in this market, but it’s just a little to expensive to buy at anything above $20 per share.
While it is a fast-growing company, I’m concerned about Asana’s valuation when taking into account the company’s distance from profitability and its competition from other software companies like JFrog, Atlassian, and Smartsheet.
Asana, co-founded and headed by Facebook co-founder Dustin Moskovitz, grew revenue by 86% to $142.6 million in its fiscal 2020. And in its most recent quarter that ended in April, it grew by 71%.
But even with customers like Facebook, Google, and Harvard University, it’s just not enough to justify nearly a $5 billion market cap.
You see, losses for 2020 more than doubled from 2019 as the firm sank more money into sales and marketing operations in efforts to gain market share as companies shifted to remote work amid the pandemic.
The expenses ate into the company’s margins and its losses increased from $50.9 million in 2019 to $118.6 million in 2020.
Essentially, Asana is an imperfect cloud play with a stock that’s currently priced for perfection near $30 per share.
IPO #2: Palantir (NYSE: PLTR)
Rating: Buy
Two things I look for when determining whether to buy a new stock are: strong leadership/management and competitive advantages in a big market that can’t easily be replicated by another company.
Benjamin Graham/Warren Buffett-style value investors call this having a “wide moat.”
And Palantir Technologies checks both of these boxes…
Founded by billionaire investor and entrepreneur Peter Thiel in 2003, Palantir’s mission is to help people and institutions solve hard problems and change the world for the better with good data and the right technology.
Palantir collects big data from public and private databases and uses artificial intelligence to analyze the information it gathers. The proprietary AI technology the company engineered itself gives it a wide moat over its competitors.
When it comes to allocating capital and signing massive profit-driving clients for Palantir, I have no question that Peter Theil is the best man in the world for the job.
In 1998, Theil co-founded PayPal with LinkedIn’s Reid Hoffman, Tesla’s Elon Musk, YouTube’s Jawed Karim, and more.
So, he knows a thing or two about running a tech company and how to surround himself with the best and brightest engineers possible.
Thiel’s also one of the most successful venture capitalists of all time. He made the first outside investment in Facebook (NASDAQ: FB), where he still serves as a director. And he provided early funding for LinkedIn, Yelp, SpaceX, and Airbnb – just to name a few.
Related: Would You invest in SpaceX?
The relationships Theil has with the leaders in tech, general business, and the government have led to Palantir signing many high-profile clients…
Some of Palantir’s largest customers include Morgan Stanley, Merck, Airbus, Fiat Chrysler, state and local governments, and even some federal agencies like the Department of Defense (DOD), the Central Intelligence Agency (CIA), and the National Security Agency (NSA).
Palantir was even hired by the Centers for Disease Control (CDC) for the coronavirus pandemic we’re currently facing…
With approximately 125 customers in 36 industries spanning more than 150 countries, it’s clear Palantir is winning lots of new business. They’re also winning more business from old customers.
Palantir anticipates revenue growing 42% in 2020 to about $1.06 billion, according to its most recent filing on Sept. 21. That would represent a 17% increase of its 2019 figures, when sales grew 25% to $742.6 million.
And in 2021, the company projects better than 30% revenue growth.
As far as PLTR stock goes, I think anything under $10 per share is a solid price to starting buying into the company.
Over the next 12 months, it wouldn’t surprise me to see PLTR stock jump to $15-20 per share.
NEXT: New Law Gives All Americans a Shot at Startup Millions
A recent act of Congress entitled “HR 3606” makes it so virtually all Americans can become angel investors!
Thanks to this law, if you’re an American citizen over the age of 18…
YOU can grab shares in tiny companies with the potential for explosive growth long before they ever hit the stock market.
You don’t have to submit bank statements or pass any tests!
If you have $100 and five minutes to spare, you can become an angel investor!
Regular Americans all over the country are already taking advantage and getting incredibly rich.
I’m talking about people like:
- Joseph K. of Cincinnati, who says his startup shares are worth “just under $100 million.”
- Or Susanne P. of San Francisco, who reports that she’s walking away with $6 million — after paying California taxes!
- And Kurt R. of York, Pennsylvania, who tells us he’s cashing out of his startup for a whopping $17 million.
This is the wealth-building event of the century…
And there is no time to waste!
That’s why ex-Morgan Stanley banker Jason Williams has prepared an urgent presentation called “Angel Investing Unlocked.”
In it, he’ll explain exactly how you can get started as an angel investor TODAY…
And how you can potentially transform a tiny starting stake into $1,000,000+.
This is your chance to get in early on the next Amazon, Google, or Starbucks!
So don’t delay, get FREE access to this presentation when you click here now.
