German sandal maker Birkenstock Holdings Ltd. made its highly anticipated trading debut, but it was met with caution from investors amidst a competitive casual-footwear market. The company’s stock fell 12.6% on its first day, signaling potential challenges ahead.
Birkenstock’s initial public offering (IPO) was priced at $46 a share, slightly below the midpoint of its expected range. The IPO was underwritten by reputable firms including Goldman Sachs, JPMorgan, and Morgan Stanley. However, recent IPOs have shown mixed results, with some performing well initially but then experiencing subsequent drops in value.
Investors have become more cautious about IPOs and special purpose acquisition companies (SPACs) due to past negative experiences. Many prefer to wait and observe the market before investing their money. Birkenstock’s debut adds to this uncertainty.
Despite investor reservations, Birkenstock boasts a loyal customer base. A staggering 70% of existing U.S. consumers have purchased at least two pairs of the brand’s iconic shoes. In fact, a recent survey revealed that 86% of recent purchasers expressed a desire to buy again, with 40% stating that they didn’t even consider other brands.
However, the company’s valuation of $8.6 billion has raised eyebrows, as it is considered to be on the higher side. Birkenstock’s price-to-sales ratio exceeds the industry average, making it appear overvalued compared to its peers. Competitors such as Skechers USA Inc., Crocs Inc., and Steve Madden Ltd. have lower valuations, making Birkenstock’s valuation seem steep in comparison.
To justify its valuation, Birkenstock would need to generate over $3.8 billion in annual revenue. However, this is more than three times its projected revenue for 2022. As a result, some analysts argue that there may be little rationale for Birkenstock to be a public company, casting doubts on the potential profitability for investors in the IPO.
In conclusion, Birkenstock’s stock fell during its trading debut, prompting caution among investors in the competitive casual-footwear market. While the company has a dedicated customer base, its high valuation and projected revenue raise concerns about its sustainability as a public company. As investors tread carefully, it remains to be seen whether Birkenstock can overcome these challenges and deliver long-term profitability.