Most of the dozen stocks that have gone public in June are beating the market, and a week ago, two of them -- Revolve Group (RVLV 9.31%) and CrowdStirke Holdings (CRWD -0.83%) -- had more than doubled. Online fashion retailer Revolve and network cybersecurity specialist CrowdStrike are still this month's hottest debutantes, up 95% and 81%, respectively. Most IPO investors would be thrilled with those near-term returns. However, things used to be a lot better.
When Revolve Group and CrowdStrike Holdings peaked on Wednesday of last week, they were trading 169% and 135%, respectively, above their IPO starting lines. The hot rookies have cooled off over the past five trading days. Let's see what each one will have to start rallying again.
Revolve Group isn't growing as quickly as some of this month's other new listings, but there's more to the trending internet retailer than the modest 25% top-line growth it posted last year that decelerated to 21% in this year's first quarter. Revolve Group is very profitable, a byproduct of relying largely on the magnetism of online influencers to drum up leads for its online platform on the cheap.
Catering to next-gen fashionistas may seem like a pointless grab for young people with light pockets, but the average order size for Revolve is clocking in at $279, according to this month's prospectus. Folks want to emulate the influencers they follow on social media, and those fashion statements don't come cheap. Revolve doesn't have to settle for discounting to clear inventory like most online specialists, as nearly four-fifths of its net sales are generated from full-priced merchandise.
CrowdStrike hit the market this month oozing with momentum. It was the company that unearthed the alleged hacking of the Democratic National Committee servers ahead of the 2016 presidential election, and media attention from detecting that notorious cyber attack has helped build up its customer base. CrowdStrike's revenue has more than doubled in back-to-back fiscal years.
The bottom line is another story. CrowdStrike is growing a lot faster than Revolve, but unlike the e-tailer with expanding profitability, the losses in this case are widening. CrowdStrike hit the market with some pretty notable investors that include the world's leading search engine provider and one of the more successful Silicon Valley venture capital firms. Investors will overlook the red ink as long as the stellar growth continues.
Pick of the litter
Neither stock is cheap these days. CrowdStrike trades at nearly 50 times trailing revenue, and naturally there's not going to be an earnings multiple for a stock when the red ink is getting heavier. Revolve Group may seem like a relative bargain at less than five times net sales, but that's pretty high for a retailer. Revolve Group trades at 80 times trailing earnings, a hefty multiple in any industry.
Revolve Group still gets the nod here. As exciting as CrowdStrike's growth may be, it's vulnerable given its lofty valuation in its cutthroat niche. Online fashion retailing may be even more competitive, but at the end of the day, Revolve Group commands a $2.4 billion market cap -- compared to more than $12 billion for CrowdStrike -- despite generating more than twice the revenue and several years of profitability with expanding margins to boot.