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When Is the Right Time to Buy These 2 Hot IPOs?

By Justin Pope – Aug 25, 2021 at 6:57AM

Key Points

  • Global-E Online and dLocal are hot stocks that recently went public.
  • They both recently reported their first quarter since their IPOs, and investors applauded the results.
  • The stocks are expensive, which could put a damper on future returns. There may be better opportunities to buy shares in the future.

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These two recent initial public offerings are sizzling, but investors may want to wait before buying, or their returns might fizzle out.

Every investor chases the dream of saying that they got in on the next Amazon near its initial public offering. It's one of the reasons that we get that "IPO fever" when a new company comes public, and the stock often goes wild. Recent examples are e-commerce company Global-E Online (GLBE 13.12%) and payments platform company dLocal (DLO -15.14%). Each recently reported strong earnings, and investors are pushing the stocks higher.

However, investors should stay aware of exceedingly high valuations that can suck the future returns out of a stock. Here is why investors could be better off remaining patient and when it might make sense to buy shares of these rising companies.

Young adult sits in front of a monitor and uses a tablet.

Image source: Getty Images

What does Global-E Online do?

Global-E Online is an e-commerce platform that powers cross-border sales, or in other words, enables a merchant in one country to sell to a customer in another. There are a lot of hurdles to selling to foreign consumers, including but not limited to:

  • Foreign language barriers
  • Different currencies
  • Tax laws
  • Difficult deliveries and returns
  • Fraud risk

As a result, most e-commerce is local, where consumers buy from merchants in their home country. Global-E Online offers a range of services and tools on its platform that solves these problems, making international e-commerce more feasible.

Reported strong results

The company recently reported its earnings for the second quarter of its fiscial year 2021, its first since going public. Global-E beat analyst estimates by 20%, posting revenue of $57.3 million (and 92% year over year growth). The business was also profitable, posting adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $7.6 million.

According to Forrester, global cross-border e-commerce sales are estimated to be as high as $736 billion in 2023. Global-E Online is guiding for a full-year 2021 gross merchandise value of $1.37 billion, which is the total value of transactions passing through its platform. The company has penetrated less than 1% of its potential market compared to the total amount of global e-commerce sales, which leaves a lot of opportunity for long-term growth.

What does dLocal do?

dLocal is a payments platform that powers transactions in emerging markets. It's tough for global merchants to do business in less developed economies within Latin America, Africa, and Asia because there are many payment systems and currencies.

dLocal works with more than 330 merchants, including Amazon, Nike, Uber Technologies, and Wix.com, and accepts more than 600 payment methods within dLocal's single software application. Through dLocal, these merchants can collect payments in emerging markets and send payouts, all in localized currency, making transactions simpler.

Blowing away expectations

The company recently reported its second-quarter results for 2021, its first quarter as a public company, and smashed analyst estimates. Its second-quarter revenue of $59 million represented a 186% year-over-year increase and surpassed analyst estimates by nearly 45%. It also reported positive earnings per share of $0.06, indicating that the business is profitable, despite being a rapidly growing company that's investing to fuel growth and expansion.

We discussed the expected growth of international e-commerce with Global-E Online, and it appears logical that payments would follow a similar trajectory in the years ahead. dLocal is especially positioned to grow due to its immense value to its merchant customers, who spend 196% more on average once they start using dLocal.

Two of the most expensive stocks on Wall Street

Investors have praised both stocks following strong earnings reports, sending share prices to near their highest points since going public earlier this summer. Global-E Online and dLocal are now two of the most expensive stocks on all of Wall Street:

Company Price-to-Sales Ratio
Global-E Online 54
dLocal 149

Data source: YCharts

Using analyst estimates for the full 2021 year, Global-E and dLocal trade at price-to-sales ratios of 54 and 149, respectively. These are very high valuations that could already be pricing in the potential growth of these businesses over the coming quarters.

So when might it make sense to buy shares? If we get a market-wide pullback, these stocks with high valuations may be susceptible to selling pressure because investors may begin to migrate toward safer stocks with more modest valuations.

In addition, newly public companies have lock-up expirations when shares held by insiders and private investors are "unlocked" and become eligible to be sold on the market. The lock-up expiration for Global-E Online is in November, and dLocal's is in December. The additional supply of shares hitting the market often causes the stock price to come down a bit, which investors should look for as an opportunity to buy shares.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Nike, and Wix.com. The Motley Fool recommends Uber Technologies and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

DLocal Limited Stock Quote
DLocal Limited
DLO
$12.39 (-15.14%) $-2.21
Global-e Online Stock Quote
Global-e Online
GLBE
$24.40 (13.12%) $2.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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