It feels like, just a few years ago, new initial public offerings (IPOs) and special purpose acquisition companies (SPACs) were rolling out almost weekly. When markets are boiling, companies tend to pounce and take their shares public. Indeed, in the U.S. alone, more than 1,400 IPOs and SPACs have hit the market since 2021.
Unsurprisingly, many of those offerings weren’t exactly top-tier and have subsequently struggled. However, amidst the minefield, there are a few hidden gems.
Given the staggering number of new public offerings, it’s critical to have some ground rules. The following three IPOs to consider were all traditional public offerings (not SPACs), debuted in 2021 or later, and have each dropped at least 20% from their IPO price. With that clarified, let’s delve into these three tarnished IPOs—markets dub them the underdogs, but they bear the potential of shedding their underperformance in the forthcoming months and years.
DLocal (DLO)
DLocal (NASDAQ:DLO) is a payments processing platform with a focal point on the South American market. Hailing from Uruguay, DLocal provides payment solutions to firms operating in e-commerce, digital streaming, ride-hailing, FinTech, and travel.
The company ventured into the public domain during the 2021 e-commerce boom and was arguably overvalued, given the robust demand for payment companies. Consequently, DLO stock took a nosedive. Investors scrambled to offload payment-related shares, while naysayers brought attention to questionable accounting tactics and high-risk merchants, such as cryptocurrency companies, that utilize DLocal’s platform.
However, the tides appear to be changing for the better. The company has revamped its management and reported robust operational results. Remarkably, the company is already highly profitable and is up for grabs at less than 30 times forward earnings. Analysts foresee DLocal achieving over 30% growth in revenues and earnings by 2024.
The Duckhorn Portfolio (NAPA)
The Duckhorn Portfolio (NYSE:NAPA) specializes in upscale and luxury wine brands. Its portfolio includes the Decoy, Goldeneye, Duckhorn, Calera, and Kosta Browne brands.
NAPA shares dipped following its IPO due to the sluggish upscale wine market. The consumption of luxury wine heavily depends on fine dining restaurants and luxury hotels. The pandemic dealt a blow to these industries, and wine producers, including Duckhorn, faced surplus inventory.
However, there’s flickering hope on the horizon. Although the industry witnesses declining volumes, experts predict an upsurge in upscale wine market value in 2024, with further recovery to follow. In the meantime, the Duckhorn Portfolio has undergone a change in management and is pursuing additional mergers and acquisitions to fortify its operations amidst this cyclical slump. This premier wine producer is trading at a discount, at less than 14 times forward earnings.
Portillo’s (PTLO)
Portillo’s (NASDAQ:PTLO) is a fast casual restaurant chain renowned for its Chicago-style cuisine, including hot dogs and Italian beef.
The restaurant took a leap into the public sphere during a bullish market sentiment when investors were on the hunt for the next Chipotle. Yet, Portillo’s witnessed relatively sluggish revenue growth in recent years. Whilst the company eyes expanding its national footprint, certain investors have raised doubts about whether the Chicago-based chain can repeat its success in markets farther from its hometown.
The ultimate addressable market for Portillo’s concept remains an enigma. However, with PTLO stock tumbling more than 40% over the past year, there is perceivable value, especially as certain states, like Florida, prove to be strongholds for Portillo’s.
At the current price, Portillo’s shares are priced at less than 1.25 times its revenues, which is a modest valuation for a fast casual chain that is already highly profitable. The company remains dedicated to 10% annual unit growth, and hitting that mark should propel its shares significantly from their current valuation.
On the date of publication, Ian Bezek held a long position in NAPA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
