Birkenstock Holding (BIRK) is among the more recognizable initial public offerings (IPOs) of the fall, but retail investors who have long loved the company's clunky sandals would do well to steer clear of buying its stock, skeptics say.
Shares in the German premium footwear brand started trading October 11 on the New York Stock Exchange under the ticker BIRK. Birkenstock priced its IPO on Tuesday night at $46 per share. This was near the midpoint of its anticipated range of $44 to $49, which gave the company a market capitalization of roughly $8.7 billion. However, BIRK opened well below here on its first day of trading, at $41, before closing the session at $40.20.
The company's valuation is a big red flag for David Trainer, CEO of New Constructs, a research firm powered by artificial intelligence. The expected $8.7 billion valuation gave Birkenstock a larger market capitalization than peers such as Skechers (SKX), Crocs (CROX) and Steve Madden (SHOO), writes Trainer in a note to clients.
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"Even more shockingly, the only footwear companies with a larger market cap are Nike (NKE) and Deckers Outdoor (DECK)," Trainer adds. "While Birkenstock is profitable, we think it is fair to say that the $8.7 billion valuation mark is too high, especially for a company that was valued at just $4.3 billion in early 2021."
Trainer figures that to justify an $8.7 billion valuation, Birkenstock would need to generate north of $3.8 billion in annual revenue, or more than three times its revenue in 2022.
"We don’t see this happening anytime soon, if ever," he says. "We don't doubt that Birkenstock has strong brand equity and produces stylish sandals, but there is really no reason for this company to be public. We do not think investors should expect to make any money by buying this IPO."
Birkenstock joins crowded IPO club
Birkenstock joins a growing list of prominent names making their stock market debuts recently as the IPO market continues to wake up. Arm Holdings (ARM) enjoyed the most-hyped debut in years last month. Instacart (CART) and the Kellogg spinoff Kellanova (K) have also given equity investors more options for their portfolios.
Just be aware that retail investors typically don't get access to hot upcoming IPOs, which is really just as well. It's too easy to buy high under the best of circumstances. Frenzied opening day trading only compounds the problem.
Most importantly, experts say, is that the latest IPOs are having a hard time holding on to their initial excitement in the downdraft of the broader market.
"Investors should have learned a valuable lesson in the past few weeks when it comes to IPOs," writes Trainer. "Arm Holdings and Instacart went public at sky-high valuations, and the stock prices of both companies have fallen significantly over the past few weeks."
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