IPO investing is without a doubt one of the most intriguing opportunities to pursue in the market. Choosing wisely can lead investors towards picking up shares of the next huge winner at low prices while taking a big position in a new public company that fails to find its footing will have investors quickly underwater. That’s why it’s so important to approach investing in IPOs differently than you would with other more established companies.
Slowly scaling into these types of positions can be a nice strategy since they usually don’t have a trading history to base decisions on and can be very volatile. It’s also critical to take due diligence seriously and read the prospectus of a new company before adding shares. Investors might also want to go with IPOs that have strong underwriters and wait until the end of the lock-up period before allocating a significant amount of capital to them.
With these tips in mind, let’s take a look at 3 brand-new IPO stocks to watch in October.
1. Ginkgo Bioworks Holdings
Ginkgo Bioworks Holdings (NYSE:DNA) went public in September in one of the largest SPAC merger deals ever and has certainly generated a lot of buzz, so it’s a good idea to keep an eye on the stock in the coming weeks.
This Boston-based biotech company was founded by scientists from MIT and is building a platform that could enable its customers to program cells, which is a technology that has the potential to transform many industries as we know them. The company’s cell programming can be used to find more effective and environmentally friendly ways to create products like food ingredients, cosmetics, medicines, and more.
Just think about the upside with a platform that can use genetic engineering to design, write, and debug DNA code. Industries like chemicals, agriculture, food, consumer products, and pharmaceuticals could all use this technology to revolutionize their products.
The company saw its revenue jump by 41% year-over-year in 2020 to $77 million, and Ginkgo estimates its revenue will be over $1 billion by the year 2025. Finally, the company has a unique business model that allows Ginkgo to receive revenue from a customer up-front to produce a microorganism, then receive royalties after the process is complete. That means there is the potential for recurring revenue that could add up to huge cash flows for the company in the future.
2. Warby Parker
Next up is Warby Parker (NYSE:WRBY), an eyewear company that just went public via direct listing this week. What’s intriguing about this company is that it already has a strong e-commerce platform to go along with its physical retail stores, which is a huge positive in today’s online-centric shopping world.
Warby Parker started off with a direct-to-consumer business model, as the company shipped its affordable and stylish glasses to customers and allowed them to return the pairs that they didn’t like. This offered a much more cost-friendly and convenient way for people to get prescription eyewear, and part of the reason why the company has become so popular among glasses wearers.
Warby Parker has since expanded to brick-and-mortar retail stores, contact lenses, eye exams, and vision tests. It’s worth mentioning that the company plans to open 30 to 35 new retail stores by the end of its current fiscal year, which is a good sign that the company has the capital to expand its physical presence.
While the company has been growing its net revenue in each of the last three years, it has also reported net losses that could be a cause for concern. That’s why it’s probably best to play a wait-and-see approach with this brand new IPO, but it’s certainly a stock worth keeping an eye on going forward.
3. Toast
Toast (NYSE:TOST) couldn’t have picked a worse time of year to make its public debut, as essentially all high-growth software stocks have been getting toasted during the recent market selloff. However, it’s still an interesting company to consider after the stock price can stabilize and find a bottom.
Toast is a cloud-based end-to-end technology platform that is specifically built for the restaurant industry. Think about how quickly restaurants have had to adapt to a new way of doing business following the pandemic. Things like digital ordering and delivery, point-of-sale payments, and marketing and loyalty programs are now customary to consumers. That’s why Toast stands out.
The company’s single platform of SaaS products and fintech solutions are the perfect tool to help restaurants streamline their operations and bring their businesses into the digital age. The company’s annual recurring revenue was up by 118% year-over-year in Q2, and Toast served over 48,000 restaurant locations as of June, a number that has nearly doubled from the 2019 figure.
The bottom line is that Toast is growing fast and fulfilling a business need for almost any restaurant owner, which is why it's another attractive IPO to watch in October.