Don't Buy the Birkenstock IPO, Expert Urges

a display of Birkenstock footwear in store

(Image credit: Krisztian Bocsi/Bloomberg via Getty Images)

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.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

"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."

Dan Burrows is Kiplinger's senior investing writer, having joined the publication full time in 2016.

A long-time financial journalist, Dan is a veteran of MarketWatch, CBS MoneyWatch, SmartMoney, InvestorPlace, DailyFinance and other tier 1 national publications. He has written for The Wall Street Journal, Bloomberg and Consumer Reports and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among many other outlets. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange.

Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.

In his current role at Kiplinger, Dan writes about markets and macroeconomics.

Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.

Disclosure: Dan does not trade individual stocks or securities. He is eternally long the U.S equity market, primarily through tax-advantaged accounts.