When I think of initial public offerings (IPOs), they rarely tend to strike me as the best UK stocks to buy. Well, at least not at IPO time. In fact, I find it hard not to think of Aston Martin and its disastrous flotation in 2018. But, so far, Trustpilot Group (LSE: TRST) looks like a whole different story.
Despite a 2021 recovery, Aston Martin shares are still down more than 80% since IPO. By contrast, the Trustpilot share price has gained 45%. And that’s just in the six months since the company came to market. But, as I write, the price is down 7.4% on half-year results day. So is something going wrong?
Shares in the FTSE 250 stock had already been slipping back since their peak. In fact, they had reached a 70% gain on the IPO price at one stage. When a popular growth stock climbs rapidly and then falls back, I think two things. First, I think “Ah, that always happens with popular growth stocks.” But next, I wonder if I’m seeing a buying opportunity.
Among the best UK stocks?
I avoid buying at IPO as a hard rule. Some obviously do well. But if, for example, I’d invested some money 50/50 in Aston Martin and in Trustpilot at their respective flotations, I’d still have lost out. But a winner falling back a bit, well that could offer a second bite of the cherry.
So what do the first-half figures look like? Well, not bad at all to me. In fact, the company upgraded its full-year guidance on the back of them.
Trustpilot said: “We previously provided guidance for high-teens constant currency revenue growth in the current year. On the back of stronger H1 FY21 performance, we now expect to achieve a rate of constant currency revenue growth for the full year consistent with H1 FY21.”
Revenue up, share price down
First-half revenue came in 22% ahead of the previous year, at constant currency. So that sounds like an impressive bit of upgrading to me. And yet it results in a sharp fall in the Trustpilot share price? Well, when I see something falling where there doesn’t appear to be a good reason, I do wonder if I’m looking at perhaps one of the best UK stocks.
I can only assume the company’s widening losses lie behind the negative market reaction, even if that was largely expected. The apparent scale of the loss might have taken some by surprise though. Trustpilot recorded an EBITDA loss of $11.6m, which is quite a bit bigger than the EBITDA loss of $2.6m for the same period last year.
But on an adjusted basis, things look like they’re going in the right direction. The company reported positive adjusted EBITDA of $3.8m, more than double the $1.6m achieved in 2020.
What next for Trustpilot?
We’re still looking at negative EPS, so it’s hard to guess at any fundamental valuation measures right now. And I simply don’t buy growth stocks that aren’t yet delivering sustainable profits, recent IPO arrivals or not.
But what do I think will happen to the Trustpilot share price over the next 12 months? I wouldn’t be surprised to see the stock remain low until the market has properly digested the latest results. And then head upwards again.
