With 407 companies debuting on the public markets, there was certainly no shortage of IPOs to keep track of last year. Nearly as many as the 409 companies that went public in 2018 and 2019 combined, the number of IPOs in 2020 was the highest since 2000, when 429 companies underwent the IPO process.
While the stocks of companies that have recently completed their IPOs often exhibit considerable volatility in their share prices, smart investors know that keeping a watchlist of stocks can be a valuable tool, helping them to identify potential additions to their portfolios. Though the variety of names is considerable, stretching across a wide swath of industries, savvy investors would be wise to keep their eyes on three stocks in particular: Array Technologies (ARRY 2.73%), MP Materials (MP -0.06%), and QuantumScape (QS -1.65%).
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A place in the sun
One of the newest names available to investors that has come from the solar industry, Array Technologies, held its IPO in October 2020. As the "guy behind the guy," Array Technologies manufactures ground-mounting systems, or trackers, and provides them to developers of utility-scale solar projects. Unlike fixed-tilt systems which don't move, Array's trackers rotate the solar panels that they're mounted to throughout the day, optimizing energy production.
For investors interested in the renewable energy industry, Array Technologies is certainly a ticker to keep on the radar.
ARRY Revenue (Annual) data by YCharts.
After growing revenue and profit over the past three years, Array Technologies forecasts continued growth in 2021. Should the company meet the midpoint of its guidance, it will generate revenue of $1.1 billion and adjusted EBITDA of $172 million, representing year-over-year growth of 23% and 7%, respectively.
And the company appears to have some tailwinds that can help it to achieve further growth beyond 2021. For one, Congress passed legislation at the end of 2020 that included a two-year extension of the 26% investment tax credit, a key contributor to the solar industry's growth. Another positive sign for the company was President Biden's rejoining of the Paris Agreement, indicating that demand for solar power should remain strong in the U.S. -- Array's major market, accounting for 92% of 2020 revenue.
Get charged up with this mining company
After raising $545 million through its merger with the SPAC Fortress Value Acquisition, MP Materials hit the public markets in November 2020. The company's name may sound especially familiar, as it's one of the many SPACs that Chamath Palihapitiya has helped to bring public over the past year. MP Minerals owns and operates the Mountain Pass Rare Earth Mining and Processing facility, which the company characterizes as "the only integrated site of its kind in the Western Hemisphere."
Currently, China dominates in the production of rare-earth oxides (REOs), a critical component in wind turbines, drones, and EV batteries and motors. According to the US Geological Survey, China produced 132,000 metric tons of REOs in 2019, representing 63% of total world production; moreover, it has the largest reserves of REOs in the world -- an estimated 44 million metric tons, which is 37% of the global amount. In light of the heightened geopolitical tensions between the U.S. and China, MP Minerals provides the opportunity to gain security in the supply of these important minerals.
During its recent fourth-quarter 2020 earnings presentation, MP Minerals reported strong REO production growth for 2020: 38,500 metric tons, representing year-over-year growth of 39%. With the help of production costs falling 28% from 2019 to 2020, MP Minerals achieved positive operating cash flow last year. Whereas the company reported an operating cash burn of $0.4 million in 2019, it generated $3.3 million in 2020.
Building a better battery
Seeking to revolutionize the batteries found in EVs, QuantumScape claims to be on the verge of disrupting traditional lithium-ion batteries, having "pioneered the development of solid-state lithium-metal battery technology." QuantumScape is still in the development phase, and it doesn't expect to achieve commercial production of its batteries until 2024. But once commercial production commences, management expects the income statement could quickly become supercharged on both the top and bottom lines.
While the company anticipates booking sales of $14 million in 2024, it expects this to grow to skyrocket to $6.4 billion in 2028. The company, however, expects to breakeven in terms of gross profit and report negative EBITDA of $130 million in 2024. But things, presumably, will quickly improve. In 2028, QuantumScape forecasts $1.6 billion in EBITDA and $563 million in free cash flow.
QuantumScape is optimistic that it can bring its innovative batteries to market in the next few years, but there are plenty of skeptics who doubt that the company will achieve this feat due to the technical challenges of manufacturing solid-state batteries. However, QuantumScape reported in February that it achieved a milestone in the testing of its multiple-layer cell -- an auspicious sign of the company's progress in bringing its batteries to market. There's plenty of challenges that remain for the company in bringing the production of it batteries to scale, so interested investors will want to look for further success in the testing phase such as the creation of 8 and 10-layer cells which the company hopes to achieve by the end of 2021.
What's a watchful investor to do?
For investors on the prowl for great growth stocks -- and an eye on the renewable energy industry -- Array Technologies, MP Materials, and QuantumScape are all worthy names to keep on a watchlist. Of course, investors shouldn't look at these stocks through rose-colored glasses. There are concerns facing all three businesses, including the declining 2020 operating cash flow from Array Technologies, the recently announced capital raise of MP Materials, and the recent equity raise from QuantumScape. Therefore, investors should exercise due diligence before opening a position in any of these stocks.
