3 best IPO stocks to buy in 2022
2021 has been a crazy time for growth stocks. Some names are now (in December) in the midst of a third pullback last year and double-digit percentages down from their all-time highs. Among the hardest hit stocks are recent IPOs, which tend to be particularly volatile in their first year as publicly traded companies.
However, the recent massive sell-off appears to be another fantastic buying opportunity for investors focused on the long term (at least a few years, but the more the better). Three 2021 IPOs that deserve to be on your radar for 2022 are DigitalOcean (NYSE: DOCN), Global Coinbase (NASDAQ: COIN), and SoFi Technologies (NASDAQ: SOFI).
A decade of rapid adoption of cloud computing awaits
DigitalOcean, the cloud computing platform designed specifically for small and medium-sized businesses and start-ups, completed its IPO in March 2021 and raised around $ 775 million in fresh cash in the process. As of this writing, the little cloud technologist’s shares are up 57% from their IPO price, despite falling 45% from all-time highs reached last month.
At this point, DigitalOcean is now trading at the same level as before its fantastic Q3 earnings update. Specifically, stocks trade around 17 times after 12 months of earnings, and although earnings are reinvested into the company to promote expansion, DigitalOcean is nonetheless positive in terms of free cash flow.
Given that third quarter revenue grew 37% year-over-year to $ 111 million and Adjusted EBTIDA profit margin is on track to be very healthy 30% for the set of the year, this 2021 IPO is fantastic long-term value. In a few years, the company aims to maintain 30% annual sales growth, which will put it on track for a billion dollar turnover by 2024. With developers and With companies flocking to highly efficient cloud-based operations, DigitalOcean is expected to be a growth story throughout this decade.
Of course, there is a worry that the public cloud giants love. Amazon, Microsoft, and Alphabet could run DigitalOcean, hence a reasonable valuation relative to other small, high-growth cloud companies. But the big three of the public cloud also offer services to small and medium-sized businesses and, to date, they haven’t been able to oust this little upstart. I remain optimistic about the prospects for DigitalOcean.
Leading the charge in the cryptocurrency economy
Cloud and advanced computing are the driving force behind the development of the Internet today, and in many ways cryptocurrency is a possible next wave of increased decentralization of the World Wide Web. Crypto owners own more than just digital currency. Ownership of some of these tokens allows the holder to participate in blockchain computing, making their device part of a global network of individual computers that combine to form a type of supercomputer (like data centers, l computing unit of the cloud, today are supercomputers).
Of course, the crypto movement has a long way to go before it becomes this decentralized, long-term view of the digital economy. But until then, crypto trading and related services are booming. One of the main exchanges (measured by trading volume) is Coinbase, which started trading in April 2021 following a direct listing. This was not a traditional IPO, as Coinbase did not need to raise capital from investors by issuing new shares. Nevertheless, the race has been tumultuous since then. Coinbase is down 26% from its closing price on its first day of trading.
There’s a lot of debate about whether the company’s revenue growth (up 330% year-over-year to $ 1.24 billion in the third quarter) is sustainable – or whether sales could collapse if the extremely volatile cryptocurrency market decides to collapse. There is also a lot of competition, and given the adolescence of the crypto industry as a whole, things will move quickly with blockchain technology in the years to come. Coinbase’s current leadership position could quickly falter if it does not stay abreast of these challenges (for example, the development of the Metaverse which has recently gone viral).
However, at nine and 22 times 12-month sales and profits, respectively, Coinbase’s incredible growth can be bought at a relative price – assuming its business and the crypto economy continue to grow at a pace. even modest in the years to come. I’m ready to start soaking my toe in water at this point with the Coinbase stock.
A growing fintech
Another nontraditional IPO was SoFi Technologies, a digital lender and fintech company. The company went public through the SPAC merger in June 2021, raising some $ 2.4 billion in cash in the process to help it continue to grow rapidly. It has been a heartbreaking race ever since. The stock has jumped 90% from its value in early 2021 (when it was just a SPAC stock before the official merger) three times, only to fall back down after each round of gains. As of this writing, stocks have only risen 20% since the start of the year.
Not that these crashes indicate that something is seriously wrong with the company itself. Member accounts continued to nearly double year-over-year in the third quarter, and revenue increased 35% to $ 272 million. So what gives?
Sales growth has slowed compared to previous quarters and SoFi is still not profitable. It generated a net loss of $ 30 million in the quarter (although it was profitable for the fifth consecutive quarter based on adjusted EBITDA).
SoFi is expected to continue to grow for many years to come, however. Its one-stop app for a wide range of digital banking, lending and investing capabilities is clearly resonating with young consumers, and its Galileo platform is helping other fintech start-ups create new digital native services, a true differentiator. The company had a balance of $ 854 million in cash and short-term equivalents at the end of September and then raised an additional $ 95 million in cash when it repurchased warrants on its shares in December (related at the initial merger of PSPC).
Trading at 11.7 times sales over 12 months, SoFi is far from cheap banking stock. But the business is much more than a traditional bank, effectively combining many mobile-centric financial services in one convenient place and thus unlocking incredible new dynamics for customers. I plan to add a bit more to my small position for early 2022.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.