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IPOWarriors IPO Preview for October 25 – October 29, 2021

October 25, 2021

Of course, I take a half a week off, and it turns out to coincide with some of the hottest day trading sessions of the past few months, including some substantial win opportunities on IPOs that offered rather easy profit picking. The good news, is that should the trend continue, we’ve got some interesting IPOs on the calendar for this week (but will get to that in the next newsletter).

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Before we jump into last week’s IPO debuts, remember to catch me on Benzinga Pro on Monday at 12:00 Noon EST to recap last week’s winning IPO trades and review this weeks IPO debuts:

https://www.youtube.com/watch?v=B11OMLXFhk0

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Ok, let’s take a look at last week’s winners and losers:

Stronghold Digital Mining (SDIG) With Bitcoin soaring to all time highs, the market was primed for this debut, which went live at $27.00 – a debut premium over 40% higher than the IPO price of $19.00: but it still carried its momentum out the gates, initially flagging at $30.00 before pushing higher still to a peak of $31.90. But from there it ran out of steam, and trailed off for the remainder of the week, dipping below the debut price early in Day 2 trading, fading out to a close at $25.36 by the end of the week. This was a debut in which taking profits early made a lot of sense, given that it was approaching a 70% premium on the IPO price when it approached $32 on the opening run, and BTCUSD dropped back down below the $60 line. When valuation reaches an unhinged peak on a momentum play, you have to expect things to cool off quickly if the underlying trend reverses: in this case, Bitcoin’s parabolic moves upwards leading up to the IPO made this an obvious play on Wednesday, and the corresponding drop in BTC indicated time to move on from this trade. Pretty similar to COIN’s debut actually, though a less prominent name for sure.
This was the only IPO I played last week, and took profits at the $30 mark with a limit order set just under that to ensure I got out with a win. I likely would have given it a little more room to run past $30 and switched to a trailing stop-loss exit had I been sitting at my desk and able to manage the trade more closely, but given that I was on vacation, was happy to get out quickly, bank profits, and go spend time with my family.

Vita Coco Water (COCO) retail demand didn’t show up for this healthy drink maker, as it debuted at $15.37, though it did make a brief run up to $16.52 before dipping, bouncing, and finally dropping.. so if you bought on the debut, and set a trailing stop loss at say, $15.50 or $16.00 on its way up, you got stopped out with a small win and avoided the steady decay throughout the remaining duration of Day 1 to a bottom print at the close of $13.52… Day 2 provided a glimmer of hope as it climbed back up to $14.62, but it couldn’t break out: too many hot plays in the market for this to get any attention, and it fizzled out to close the week at $13.95. Not all that much interest in this play quite yet, although it traded 9.66M shares on Day 1 (out of a float of just 11.5M shares); by Day 2, the volume had dropped to just 1.8M shares… and I expect this to be pretty thinly traded from here. If you’re bag holding, there stands a reasonable chance for it to recover back to $15, but you may need to be patient and take an out before that, as pretty much every sharehold is bag holding at this point.

P10 Inc (PX) aside from an anomalous spike down after the first 10 minutes of trading to $11.31, and another outlier spike in the final minute of Day 1 trading up to $12.70, this one hasn’t move much from it’s debut price of $12.16: with a lower limit being held at $12.00 and upper limit at $12.50. I’ve come to recognize that financial management IPOs (along with community banks), are not all that volatile on their debuts. This was an uplisting to begin with, and given the pattern of a lack of volatility in these types of IPOs, I’ll be hands-off these types of IPOs going forward. Not particularly dangerous, but the upside is so minimal that they hardly warrant the time and capital allocation to justify playing one of these, especially with much more exciting potential on the table…

Portillo’s (PTLO) Following the solid debut performance of FWRG, and meteoric jump off the BROS IPO (we can throw DNUT in there as well), I’m putting regional food chain IPOs back on the menu. These have been red-hot, and I am finally convinced that they are solid debut plays, though it took me longer than it should have to accept this as a high-conviction trade with strong potential to play out as a Day 2 Runner. PTLO debuted at $26.00 and pretty much climbed straight up from there – hitting a high of $31.87 on Day 1. But debut buyers who held through to Day 2 were treated to a steady climb they would truly relish: as it peaked at $44.92 for a hot dog of a trade with a potential 70%+ win. It would be pretty hard to have led this one all the way through to the peak, but if you made it to Day 2 with a portion still in your basket, you very likely came away with a 10-point win or more: so congratulations.

I do now recognize the appeal of these regional chain IPOs, and I want to dig into this topic a little further. I believe these work for a few reasons:
First, they seem to have somewhat fanatical local fan bases who love their products and are eager to get in on the debut.
Second, they are in a position to grab market share in the post-pandemic economy where many restaurants have gone out of business entirely.
Third, for the most part, they have been profitable on a local level.
Fourth, so the growth story is easy to read: if they were profitable on a local level, why not raise a bunch of money to fund expansion… duh.
Fifth, they make a great overnight media story in their local markets, which seems to fuel a Day 2 run.
And finally, now that a few of them have run, the market is keen on catching the ‘next one’.

Enfusion (ENFN) was one of those IPO debuts that I wanted to like, given it’s steady growth and strong financial baseline, but just didn’t really capture much retail interest and didn’t offer much upside, though it didn’t present much downside movement either. Kind of a boring trade if you got into it and didn’t lock in a stop loss above the debut entry point, as it opened up at $20.09 and bounced around for a few minutes before making a short run up to $20.92 before falling back down to a low of $19.63, from which it recovered back above $20… but mostly just hung in the range of $20.00 to $20.40 for the rest of the day, with no real break out until 30 minutes before the closing bell, if you can even call it that, as it spike up to a high of the day at $20.98. So if you sat around all day playing this one and decided to take profits at $20.95, then congratulations: but I’d be pretty disappointed if I had chosen to play this one instead of say, PTLO… which is most likely what I would have done had I not been off work on Thursday, so maybe better that I wasn’t online for this one.

Runway Growth Financial (RWAY) given that I couldn’t find much information about this IPO, and no one was talking about it online, it’s no surprise that it dropped from it’s $12.85 debut, but really, it stayed true to the format we’ve come to expect from financial companies: and the opening dip wasn’t that dramatic as it found a bottom at $12.45 and then quickly reversed back to a high of $13.29. It was pretty much level playing from there, as it reverted back to a base of $12.80 and closed Day 1 almost exactly where it started at $12.90. Gonna just pass on banks and financial companies going forward, doubt I’ll do much more than a cursory write up on these as well.

Aris Water Solutions (ARIS) lived down to the anemic expectations I had for it’s debut, as it opened at $15.85 and promptly crashed down to $13.70before steadily recovering back towards $15.00 before falling off at the end of the day to close at $14.30. When a company IPOs with both negative growth numbers and negative financial baseline numbers, you can’t expect strong retail demand, so the only play here was to try a time the bottom and hope you didn’t catch a falling knife. I don’t recommend this approach on a company that doesn’t appear to have any positive catalysts on the near-term horizon either.

Ventyx Biosciences (VTYX) what I hate about this one, is that it is exactly this kind of pharmaceutical IPO debut that makes me think to myself, “I know pharma debuts tend to bomb, and I understand almost nothing about this company’s products or market, but f—kit, why not play this and see if I get lucky”
9 times out of 10 they are complete failures, but that 10th time comes along, and you get what we saw here: a debut at $18.65 that ran to a high of
$22.30 on Day 1, and after what must have felt like a sharp pain the gut for anyone who held into Day 2 as it crashed down to $16.33, anyone who stuck to their guns and waited for a couple hours would have been elated to catch the reversal back up to an all time high of $25.83 – realistically, this would have been a very tough peak to catch on Day 2: once you’re down as far as you would have been on that Day 2 drop, you’re probably looking to get off the roller coaster once you’re given the opportunity to de-board with your initial investment in your pocket. So on the off-chance that I did get suckered into trading this one, I’d like to think I would have taken profits on Day 1, and intend to learn nothing from this trade other than to treat it like a bad drug that will hurt you more often than it will heal you.

Minerva Surgical (UTRS) despite the impressive growth numbers and memorable ticker symbol, the low float of just 6.25M shares was not enough to bring much interest into this IPO debut, which opened at $9.66 before tumbling down the side of a mountain for most of the remainder of the day until it hit $7.60 with about 15 minutes of trading left before sharply rebounding back up to $9.00 at the close. If you tried to buy the dip off the opening, and averaged down as it continued to fall, you were given an out at the close… but that’s a long time to spend on a break-even trade, and probably why I would have let this one pass.

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And that wraps up last week’s IPO trades. Be sure to catch me on Benzinga Pro at Noon EST on Monday.

https://www.youtube.com/watch?v=B11OMLXFhk0

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Note: the information in this article is not financial advice, and I am not a financial advisor – this is just information, so use it accordingly and do you own research before making your own decisions on how to trade. Trading stocks is risky, and you could lose money. Past performance is not indicative of future performance. I have or may take positions in the equities mentioned in this article… just, ya know, don’t blame others for your mistakes, and appreciate those who take their time to share ideas with others. Good luck out there.

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