The U.S. IPO market has been relatively sluggish this year with 149 IPOs. At the same time, disappointing stories outnumbered businesses that created value. However, amidst the depression are several ideas that are poised for multibagger returns in the next few years.
This column discusses three attractive IPOs during 2023 that are likely to create value backed by fundamentals. Although I have not screened any specific sector, I have used the bottom-up approach to examine noteworthy companies.
Let’s discuss the reasons to be bullish on these stocks with multibagger potential.
Arm Holdings (ARM)
Arm Holdings (NASDAQ:ARM) stock listed in September 2023. The potential value creator has been trending higher with a rally of 23% in the last one month. With an investment horizon of five years, ARM stock could deliver multibagger returns.
As an overview, Arm Holdings claims to be building the future of computing with the world’s most pervasive CPU architecture. More than 250 billion arm-based chips have been shipped since the company’s inception.
Importantly, Arm Holdings was building general purpose CPUs few years earlier. However, the company has a market specific strategy with focus on consumer electronics, mobile, Internet of Things (IoT), automobile, and cloud networking. Further, the CPUs are AI-enabled. With a large addressable market globally, Arm Holdings seems poised for robust growth.
Further, the company’s royalty revenue has been in a sustained uptrend. As a matter of fact, it is still collecting royalties on products developed in the 1990s. At the same time, the company’s license revenue was up 106% year over year (YOY) for Q2 of 2024. With these positives, ARM stock is worth holding.
Klaviyo (KVYO)
Klaviyo (NYSE:KVYO) stock had a subdued listing. However, the stock has trended higher by 6% in the last one month. And, this rally is expected to sustain.
Klaviyo is a provider of Software as a Service (SaaS). As of Q3 2023, the company had 135,000 customers, with 1,699 customers generating annual recurring revenue of over $50,000.
Coming to the bull thesis, for Q3 of 2023, Klaviyo reported revenue growth of 48% YOY to $176 million. For the same period, KVYO shows a healthy free cash flow margin of 15%.
Notably, the company derived 31% of Q3 revenue from Europe, Middle-East, Africa, and Asia Pacific. So, a presence in high-growth emerging markets is likely to ensure that revenue growth remains robust.
Additionally, Klaviyo reported trailing 12-month revenue of $642 million. However, the serviceable addressable market is $16 billion with the global total addressable market (TAM) at $68 billion. Truly, the company has ample headroom for robust growth, making it a potential multibagger.
CARGO Therapeutics (CRGX)
CARGO Therapeutics (NASDAQ:CRGX) is a clinical-stage biotechnology company. It focuses on developing chimeric antigen receptor (CAR) T-cell therapies for cancer patients. Recently, Jefferies initiated coverage on the company with a price target of $28. This would imply a 75% upside potential from current levels of $16.
Impressively, the company’s lead program, CRG22, is already in Phase 2 of clinical trials. Further, CRG23 is likely to enter Phase one in the coming quarters. With CARGO Therapeutics raising approximately $281 million from the IPO, funding for R&D seems to be secured for the next 12 to 18 months.
Additionally, Jefferies mentioned in their report that CRGX is a potential merger and acquisition target. The biotechnology sector has witnessed deals in the recent past. Any potential news on that front is likely to translate into some quick gains. Leaving the deal aside, potential commercialization in 2025 would be a growth and stock upside catalyst.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.