Just as a new shoe style captures the imagination of fashion enthusiasts, market participants are buzzing with excitement as German footwear giant Birkenstock readies itself for its debut on the US stock market. For investors, this IPO is akin to trying on a new pair of shoes – it may look promising, but does it offer the perfect fit for your investment portfolio?
In this article, ActivTrades will lace up its analysis boots and take a closer look at Birkenstock and its impending initial public offering (IPO) to guide you in evaluating whether this investment opportunity is as comfortable as a well-worn shoe, providing you with all the essential insights you need to step confidently into the world of the Birkenstock IPO.
Who is Birkenstock?
Birkenstock's enduring triumph in the footwear market can be ascribed to its steadfast commitment to crafting orthopedically inspired footwear. This dedication has been passed down through generations, accumulating unparalleled expertise since its inception back in 1774.
In the later part of the 20th century, Birkenstock embarked on a transformative journey, modernizing its designs and diversifying its product offerings. While steadfastly innovating in orthopedic comfort, it seamlessly incorporated contemporary styles. As the 21st century unfolded, Birkenstock transcended its reputation solely for comfort and well-being to emerge as a bona fide fashion icon.
Today, Birkenstock stands as a globally renowned brand, encompassing not only shoes and accessories but also beauty products and sleeping systems. It proudly represents one of Germany's most prominent exports and holds the distinction of being the largest employer within Germany's footwear industry.
Who is in charge of Birkenstock?
Birkenstock has historically been associated with some less-than-flattering stereotypes. It's safe to say that, for a significant portion of its history, the German brand wasn't necessarily regarded as a fashion-forward choice.
However, the tides have been changing in recent years.
Since 2021, Birkenstock has been in the hands of a fund associated with the luxury industry giant LVMH (EPA:LVMH) (Moët Hennessy Louis Vuitton) known as L Catterton. At the time of the acquisition, the company was valued at approximately 4 billion euros.
This investment, involving a substantial stake in Birkenstock by the world's largest consumer-focused private equity firm, has generated considerable excitement within the industry. It has opened up promising avenues for growth and transformation for the footwear brand.
This strategic shift underscores Birkenstock's enduring appeal, expanding beyond the boundaries of comfort-focused footwear enthusiasts. It has caught the eye of investors entrenched in the expansive and ever-evolving realms of fashion and luxury.
The collaboration with L Catterton not only solidifies Birkenstock's standing as a brand on the cutting edge of fashion but also underscores its potential for further expansion and influence in the global fashion arena.
What should you know about Birkenstock’s IPO?
The German company is scheduled to list roughly 32,258,064 common shares on the New York Stock Exchange in October, very possibly this week.
These shares will trade under the ticker symbol "BIRK" and are expected to have an initial price range between $44 and $49 per share. In the event of a high-end valuation, the company's market capitalization could potentially reach around $10 billion.
How can you participate in Birkenstock’s IPO?
If you're interested in taking part in the IPO, you can do so by either utilizing a brokerage that provides IPO trading services or through your bank if it provides such services.
While financial intermediaries can assist in acquiring company shares, allowing you to become a shareholder, there's no assurance that you'll receive the precise number of shares you had initially aimed for. This will all depend on the allocation once the IPO subscription period ends.
Of course, you can still wait for trading to begin on the stock exchange to buy shares sold on the open market if you’d prefer to, but the price may be higher than the IPO price if the IPO proves successful, or conversely, it could be lower and potentially more advantageous if the shares experience a decline once they are listed.
You can also leverage derivative products like Contracts for Difference (CFDs) on shares, as provided by regulated brokers like ActivTrades, to capitalize on the price fluctuations associated with an IPO.
Should you consider investing in Birkenstock's IPO?
While IPOs saw a surge in activity during the initial stages of the COVID-19 pandemic, their pace and overall performance have since tapered off. According to Ernst and Young, in the first nine months of 2023, there were 968 global IPOs, raising a total of US$101.2 billion in capital.
This reflects a 5% decrease in the number of IPOs and a 32% decrease in capital raised year-over-year (YOY).
Nonetheless, as we transition into the fourth quarter, a discernible uptick in investor sentiment and market dynamics has emerged, particularly within Western economies. The overall IPO market looks somewhat more promising.
Investors perceive an IPO as a financial journey, somewhat akin to sowing seeds with the expectation of witnessing their wealth blossom. However, the key to success lies in their capacity to make judicious decisions when it comes to recognizing promising companies, all while carefully considering the associated risks.
So, what should you think about Birkenstock’s IPO?
There are undeniably compelling factors in favor of Birkenstock's IPO, as well as significant challenges the company may encounter as it seeks to sustain its growth in the future.
Positive aspects:
- This IPO might signal a perspective towards a more stable financial and macro-economic environment.
Birkenstock is often compared to Crocs and it has been a positive IPO story, as the stock of this company is up more than 535 % since its IPO in 2006.
Strong international brand whose popularity and growth spiked during the coronavirus pandemic.
During the crisis and afterward, there has been a significant rise in interest for brands that provide both comfort and a sense of tradition, and this interest seemed to continue to thrive today
Recent growth has been strong for the company: its revenue grew more than 33% between 2020 and 2022 to $1.26 billion and its adjusted earnings more than doubled over the same period to $414.3 million.
Successful product placement, especially in the recent Hollywood blockbuster Barbie, as well as adoption by various Hollywood stars such as Kendall Jenner and Gigi Hadid.
The brand is also taking advantage of a change in the perspective of women who no longer view high heels as the ultimate symbol of femininity.
Negative aspects:
The German sandals maker might be too expensive, as it could trade at around 27 times its EBITDA (against 6 to 7 times for Crocs and Dr. Martens, 15 times for LVMH or 21 times for Nike (NYSE:NKE)) according to Reuters.
Recent IPOs of shoes-related businesses haven’t been very successful. Since their IPOs in 2021, the shares of Allbirds, Dr. Martens and On Holding lost more than 96%, 64% and 35% respectively.
Through the IPO, the brand may find it necessary to expand its customer base to showcase its potential for growth and appeal to investors with diverse interests. Nevertheless, this shift towards a larger and potentially more varied customer demographic could lead to a weakening of the brand's identity if it veers too far from its core values and original customer base.
Challenging market conditions with growing concerns about elevated interest rates and the overall economic situation.
High inflationary pressures that might dampen overall demand for the company’s products.
In addition to changes in customer spendings, Birkenstock is also subject to changes in consumer preferences and seasonality.
The company also faces competition from established companies and newer ones.
Now, the decision is in your hands. Do you believe that seizing the opportunity to invest in Birkenstock's IPO is a wise choice?
Share your perspective on whether this IPO is worth the investment!