Investing in IPOs (or initial public offerings) is an exciting proposition. Here, investors have the opportunity to buy shares of companies that are growing at a rapid clip. But similar to growth stocks, IPOs are valued at a premium and remain vulnerable, especially if they fail to meet market expectations.
Keeping this in mind, let’s take a look at companies that went public recently and why they might gain momentum in 2021.
Airbnb (NASDAQ: ABNB)
Shares of Airbnb are trading 38% below record highs providing investors a chance to buy the dip. As travel came to a standstill for most of 2020 due to COVID-19, companies in the hospitality and tourism industries were decimated. However, the swift rollout of vaccines in most developed countries and the possible return to normalcy make Airbnb the perfect contrarian bet.
Analysts expect the company to increase sales by 58.7% to $5.36 billion and by 29.4% to $6.93 billion in 2022. Its adjusted loss per share is forecast to narrow from $15.63 in 2020 to just $0.08 in 2022.
The shift towards remote work and rising profit margins make Airbnb a solid bet for 2021 and beyond. Wall Street has a 12-month average price target of $173, which is 28% above its current trading price.
SEMrush (NYSE: SEMR)
A company that went public in March, SEMrush is trading 20% below record highs. A company that leads the online visibility management space, SEMrush enables businesses to run SEO (search engine optimization), pay-per-click, content, and research campaigns.
In the first quarter of 2021, SEMrush reported sales of $40 million, up 44% year over year. Its average recurring revenue rose 53% to $168 million, and the company ended Q1 with a dollar-based net retention rate of 116%. Its adjusted net income stood at $2.1 million compared to a loss of $1.9 million in the prior-year period.
The company ended the March quarter with 72,000 customers, a rise of 29% year over year. SEMrush is profitable on an adjusted basis and continues to grow top-line at an impressive rate, making it a top bet for 2021 and beyond.
Snowflake (NYSE: SNOW)
The final stock on this list is Snowflake which is trading 40% below all-time highs. In the fiscal year ended in January, Snowflake’s sales were up 124% year over year and its RPO (remaining performance obligations) soared by 213%. Its total customer base was up 73%, while customers with a ticket size of over $1 million also grew 88% in fiscal 2021.
Snowflake is valued at a market cap of $66.4 billion, which is really steep given its price to forward sales multiple of 61x. However, it is forecast to increase sales by 84.8% to $1.09 billion in fiscal 2022 and by 64% to $1.8 billion in 2023.
Analysts tracking the stock have a 12-month average target price of $296, 29% above the current trading price.