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Why Global-E Online Tanked 19.4% in October

By Brett Schafer – Updated Nov 3, 2021 at 3:10PM

Key Points

  • Global-E Online is helping merchants do cross-border e-commerce.
  • The company just did a secondary offering at $64 a share.
  • The stock trades at an expensive multiple to gross profit.

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The recent IPO did a follow-on offering in late September at $64 a share.

What happened

Shares of Global-E Online (GLBE -0.67%) tanked 19.4% in October, according to data from S&P Global Market Intelligence. The high-flying IPO didn't have any news releases in the month of October, so this move looks like standard volatility that is typical for new stocks. The company also closed on a secondary offering of shares in September, which could have had an impact on the stock price decline.

So what

On Sep. 15, Global-E Online closed on a secondary offering of its shares. This was not meant to raise funds for the company but to allow some of its existing shareholders to exit their positions. The offering was for 13.8 million of Global-E's approximately 145 million shares outstanding and was sold to the public at a price of $64 per share. Normally, when a company does a common stock offering, investors will bid down the stock to at or below the offering price, bidding down indicates what large shareholders and the company itself think the business is worth. This happened here, with Global-E shares slowly tumbling after the news. The stock currently trades at around $59 a share.

A person putting a shipping label on a box.

Image source: Getty Images.

Other than the secondary offering, Global-E Online's October move was likely just normal market volatility. Recent IPOs only have a certain amount of shares available for trading, with the rest locked up to prevent nefarious management teams and investors from pumping and dumping shares right during an IPO. Global-E Online is still in this lock-up period right now. With fewer shares available to trade, investor decisions to buy and sell the stock can have a more pronounced impact than with a stock that has a higher percentage of its shares outstanding publicly traded. 

Now what

If you're an investor with a long-term time horizon, a short-term 20% move in the stock price should not affect your thesis. Global-E Online is trying to help online merchants perform cross-border e-commerce transactions more easily. These transactions, which can be in different languages and involve many different logistics carriers, are really hard for a company to manage on its own, which is why investors are bullish on Global-E's prospects as it tries to expand around the globe.

However, investors should consider how expensive the stock is right now. With a market cap of $8.6 billion and $64 million in trailing 12-month gross profit, the stock trades at a price-to-gross profit (P/GP) ratio of 134. This means that, as an investor, you need to expect Global-E online to grow its business at a high rate for many years in order to put up good long-term returns. Can the company do it? Maybe. But if you don't think it can, it is probably smart to avoid this stock right now.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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