EV IPO Worth More than GM?

Brit Ryle

Posted August 16, 2023

So we’ve got the S&P 500 falling below its 50-day moving average – which is a significant indication that the medium-term trend has changed. We’ve got Fed officials ramping up the “more rate hikes” rhetoric. We’ve got a Chinese economy that appears to be melting down. We’ve got weakening housing and manufacturing data…

And all of a sudden the IPO market gets hot with two big winners yesterday? 

Huh. I did not see that coming. Especially when one of the big winners is a company that makes specialty $400 putters that the company says are “the only putters in Golf that naturally improve your swing.”

The company – Sacks Parente Golf (NASDAQ: SPGC) – opened its first day of trading as a public company yesterday, at $4.40 a share. By 2:30 pm, the stock was up $23 to $27.50. A completely insane 525% ramp job. 

Now, as a golfer, I find it easy to believe that there are plenty of people that would gladly fork over $400 for anything that would help shave a few strokes off their score. I kinda wish I were among them. But the truth is I am hopelessly stubborn and refuse to blame my tools for what is clearly a “me” problem. Fact is, I’m more likely to pay money for things that make my game worse, like greens fees. And balls…

At any rate, for a brief few hours, Sacks Parente Golf was a $3 billion company and traded at 1.48 million times revenue. Maybe just a tad on the expensive side…

I wish I had any insight as to how such a thing can happen. Even a half-baked conspiracy-theory…but I got nothing. 

Maybe I should check the Redditt meme-stock threads and see if this wasn’t another Gamestop or Bed Bath & Beyond or AMC…

In any event, the stock has given back $23 of yesterday’s gains, so some order has been restored to the world. Cats and dogs are no longer living together.  

Some Simple Math

The other big IPO winner yesterday was a Vietnamese EV maker named Vinfast (NYSE: VFS). Compared to Sacks Parente, the Vinfast IPO was a bit of a dud. The stock only managed a 68% gain from its $22 opening price to its $37 closing price. Which makes sense if share price gains are inversely correlated to the long-term viability of the underlying company. 

Now you might see a Wall Street Journal article that says “VinFast shares more than tripled in their market debut Tuesday” and you may say to yourself “My God, this Ryle guy can’t do simple math.”

So let me set the record straight: the Wall Street Journal is wrong, at least for any kind of practical understanding of how Initial Public Offerings (IPOs) work. Companies usually go public through an investment bank. That is to say, the company sells the stock to the investment bank, who then sells a portion to their most valued clients, and then the shares become available to the public on the New York Stock Exchange or the NASDAQ. 

Each of these transactions can happen at a different price – especially the “available to the public part.” The so-called “retail investor” – otherwise knowns as “you and me” – almost always pays more for newly minted shares than what the investment bank and its preferred clients pay. 

And the Wall Street Journal’s calculation of gains for Vinfest used the insider IPO price, not the one that was actually available when the stock started trading yesterday. 

Now, before the WSJ makes fun of me, I’ll cover the fact that Vinfast wasn’t a traditional IPO. Vinfast came public via a SPAC. The structure of a SPAC IPO is a bit different than that of an investment bank IPO. For one, the SPAC doesn’t have the so-called “strong hands” of preferred clients who will be less prone to dumping the stock at the first opportunity. 

And second, SPAC’s don’t care as much about long-term reputation in the IPO world. They aren’t going to be in the business of bringing a whole brunch of companies to market. They’re looking for a couple one-offs to make some loot.

Still, the process is basically the same. The owners of the SPAC that brought Vinfest public may have made a triple digit gain. But there’s no way you or I could have come close to that gain. The stock opened on the NYSE at $22 yesterday morning. 

Deja Vu All Over Again

Toward the end of yesterday’s trading, Vinfast carried a market valuation of $86 billion. Yep, that’s more than Ford (NYSE: F) and GM (NYSE: GM). And we’ve seen this before…

When EV maker Rivian went public in November 2021, shares ramped to $175 each and the company was briefly valued at $150 billion. Obviously, that was completely nuts. But that blockbuster IPO gave Rivian $12 billion in cash to build a couple of factories and start production of its pickup trucks and delivery vans.

The SPAC deal that brought Vinfast public valued the company at $23 billion, a far cry from Rivian’s debut. And Vinfest’s IPO only involves around 1% of the company’s total shares outstanding. Which means, one, that Vinfast isn’t collecting a whole lot of cash out of this deal, and two, now that it has a conduit for selling shares to U.S. investors, I’d expect it to do exactly that…

Whether its direct sales on the New York Stock Exchange or block sales via secondary offerings, expect Vinfast to dilute shareholder value to raise cash.  

So, if you’re looking for an EV stock to buy, stick with Rivian and Fisker (NYSE: FSR). Vinfast is already down ~20% from yesterday’s close and looks to me like it will head a lot lower. 

Briton Ryle
Chief Investment Strategist
Pro Trader Today
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