Steer Clear of These 2 Overvalued Recent IPOs

The opportunity to go public quicker and cheaper led to a record increase in IPOs in 2020. Total IPOs increased to 480 in 2020 from 233 in 2019. Historically low interest rates and an upbeat stock market have been motivating factors for companies to go public.

This trend has continued this year. As of March 2021, U.S. markets recorded nearly 400 IPOs. This compares to just 37 IPOs in the same period a year ago. However, concerns over rising inflation and investors’ rotation to cyclical stocks pose a threat to many recently listed stocks.

Investor optimism over the recently listed stocks of Coinbase Global, Inc. (COIN - Get Rating) and, Inc. (AI - Get Rating) helped them hit price levels that are not justified by their recent financial performance and growth prospects. So, we think these stocks could continue retreating in the near term.

Coinbase Global, Inc. (COIN)

COIN provides financial infrastructure and technology for the crypto economy. The company provides a primary financial account for the crypto economy, a platform to invest, store, spend, earn and use crypto assets, and an online marketplace for hedge funds, money managers, and corporations, among others. The company went public on April 14, 2021.

The Schall Law Firm, a national shareholder rights litigation firm, announced in May 2021 that it is investigating claims on behalf of investors of COIN for violations of the securities laws. The investigation focuses on whether the Company issued false and/or misleading statements and/or failed to disclose information pertinent to investors.

COIN’s revenue increased 791.7% year-over-year to $1.98 billion for fiscal first quarter, ended March 31, 2021. However, its operating expenses grew 435.6% year-over-year to $813.40 million, while its total liabilities increased 69.6% sequentially to $7.34 billion.

In terms of forward Price/Book, COIN’s 19.89x is 1,513.7% higher than the 1.23x industry average. The stock’s 7.16x forward EV/Sales is 131.2% higher than the 3.10x industry average.

For its fiscal year 2022, analysts expect COIN’s EPS and revenue to decrease 39.6% and 8.8%, respectively, year-over-year to $4.75 and $5.71 billion. The stock has lost 16.3% over the past month to close yesterday’s trading session at $224.32.

COIN’s poor prospects are also apparent in its POWR Ratings. It has a D grade for Value and Stability. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Click here to see the additional POWR ratings for COIN (Momentum, Sentiment, Growth and Quality). It is ranked #49 of 125 stocks in the D-rated Software – Application industry.

Click here to check out our Software Industry Report for 2021, Inc. (AI)

AI operates as an enterprise artificial intelligence (AI) software company primarily in Europe, Asia, and the United States. It provides software-as-a-service applications for enterprises. The company also offers integrated turnkey enterprise AI applications for various market segments, including oil and gas, chemicals, utilities and manufacturing. The company went public in December last year.

AI’s total revenue increased 25.6% year-over-year to $52.28 million for its fiscal fourth quarter, ended April 30, 2021. However, its loss from operations was  $23.91 million compared to a $30.22 million  operating loss in the prior year period, while its net loss came in at $24.05 million compared to a $30.43 million net loss in the year ago period. The company’s loss per share came in at $0.24 compared to a $0.82 loss per share in the same quarter in the previous year.

In terms of forward Price/Sales, AI’s 25.81x is 535% higher than the 4.07x industry average. The stock’s 21.85x forward EV/Sales  is 411.4% higher than the 4.27x industry average.

Analysts expect AI’s EPS to decrease 180% year-over-year in fiscal 2022. Also, its EPS is expected to remain negative in 2022 and  2023. The stock has lost 54.4% year-to-date to close yesterday’s trading session at $62.10.

AI’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. The stock has a D grade for Growth, Quality, Value and Stability.

Click here to see AI’s ratings for Momentum and Sentiment as well. AI is ranked #70 of 71 stocks in the D-rated Technology – Services industry.

COIN shares were trading at $224.12 per share on Thursday afternoon, down $0.20 (-0.09%). Year-to-date, COIN has declined -31.73%, versus a 13.60% rise in the benchmark S&P 500 index during the same period.