Flashy IPOs continue to attract investors, as Oatly’s valuation passes $13 billion during its second day as a listed company.
Watery IPOs
Who would have thought investors would get so excited about oat water. Well, oak ‘milk’. Oatly (ticker: OTLY) is the latest hot issue on the Street, last week IPOing to significant fanfare.
The company already commands substantial reach, with its products in over 60,000 retail stores and 32,000 cafes. In 2020 global plant-based dairy retail sales were estimated at $18 billion – suggesting that Oatly already boasts significant market share.
The customary first day IPO pop saw the oat milk maker surge 18% – valuing the company at over $10 billion. Investors continued to pile into the stock on Friday, taking its total market value to $13 billion. To be sure Oatly is no slouch when it comes to growth. Total revenues doubled in 2020, hitting $421 million, though the company remains loss making. At those levels the stock trades at about 27x sales – not ridiculous compared to some of the recent IPOs we’ve seen (we’re looking at you Snowflake), but certainly not ‘cheap’ either.
A pandemic and inflation fears haven’t stopped investors from rushing to buy hot stocks, nor a lack of earnings or the remote prospect of future dividends. The market, for better or worse, seems to have become more casino-like than ever before.
Greater Fools
This poses a problem for investors moving forward. If assets are rising mostly on the idea that one will be able to find a buyer willing to pay a higher price for said asset – and not for fundamental reasons – what is one to do?
Do you join the casino yourself, potentially amplifying the irrational exuberance in the process? Or do you refuse to play, knowing that you may be leaving money on the table?
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