Why Birkenstock Flopped in Its IPO Today

What happened

It’s not every day that a 249-year-old company goes public, but Birkenstock (BIRK) did just that today. However, the stock immediately fell below its listing price once trading began.

As of 2:35 p.m. ET, the stock was down 11.4% from its $46 IPO price.

Image source: Getty Images.

So what

When a stock falls immediately in its first trade, it reflects weak demand among the general public and shows that investment bankers overpriced the debut. Naturally, investors who bought the IPO before it began trading aren’t pleased.

IPOs often move by double digits in their opening day session, but stocks are more likely to pop than drop as a strong opening day performance helps build momentum for the new issue.

While Birkenstock is an age-old brand, the company has experienced strong growth of late. Revenue has grown fourfold since 2014, helped by the launch of Birkenstock.com in 2016, and sales growth accelerated in 2021 as it made strategic shifts like taking back its distribution from third-party partners and accelerating its penetration of direct-to-consumer channels, including expanding its retail footprint.

Now what

Birkenstock’s overall financial numbers look strong as revenue grew 21% in the first three quarters of its current fiscal year to 1.18 billion euros (about $1.06 billion USD). Profits are strong as well; the company had a 15% profit margin in fiscal 2022, giving it 187.1 million euros (198.5 million USD) in net income.

Based on those numbers at its market cap of $7.6 billion, the stock trades at price-to-sales ratio around 5, and a price-to-earnings ratio near 30.

That makes Birkenstock relatively pricey for a footwear stock. It’s significantly more expensive than Crocs, but similar to the P/E ratio of Deckers, which makes Teva, Ugg, and Hoka.

Given the strength of the business, the stock should find a bottom soon, though 2023 has generally been a rough year for consumer discretionary stocks.

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