Erayak Power Solution Group Inc. IPO

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Contributor, Benzinga
December 13, 2022

Is Erayak Power Solution Group Inc. IPO a Good Buy?

Key Takeaways:

  • Off-grid energy equipment provider Erayak Power Solution Group will soon make its public market debut.
  • The company specializes in power inverters along with gasoline-based generators to provide users with uninterrupted power.
  • Although Erayak aligns with compelling sectors such as outdoor living, its new listing is extremely small, suggesting a higher-risk investment.

Although the known universe provides essentially an unlimited source of clean and renewable energy, corralling this astonishing potential into a usable format has long vexed human civilizations. Since the invention of solar cells in the late 19th century, advancements in renewable technologies – combined with economies of scale – have made off-power grid applications much more viable, thus setting the stage for Erayak Power Solution Group Inc.

Specializing in the manufacturing, research and development (R&D) and wholesale and retail of power solution products, Erayak’s portfolio includes sine wave and off-grid inverters, inverter and gasoline generators, battery and smart chargers and custom-designed products. These applications primarily serve agricultural and industrial vehicles, recreational vehicles, electrical appliances and outdoor living equipment.

Fundamentally, Erayak’s upcoming initial public offering (IPO) – or the first time a private enterprise distributes its equity shares to retail (public) investors – aligns with relevancies in the energy independence sphere. Obviously, recent geopolitical flashpoints undergird the importance of unfettered power distribution. As well, the sharp rise in inflation this year entices everyday individuals to consider off-grid alternatives.

At the same time, no IPO – nor any other opportunity in the free market for that matter – exempts itself from risk. For Erayak, the main point of concern centers on its extremely small offering size. Essentially, Erayak will enter the market as a nano-capitalization stock. In addition, prospective investors must recognize deflationary macro forces weighing on sentiment on Wall Street.

Nevertheless, public enterprises must start somewhere. These key factors may impact the Erayak IPO.

What Does Erayak Power Solution Do?

According to Erayak’s Form F-1 filing with the U.S. Securities and Exchange Commission (SEC), the energy technology firm specializes in the manufacturing and ultimate distribution of power solution products. Erayak conducts operations via its two wholly owned subsidiaries, Zhejiang Leiya and Wenzhou New Focus, located in China.

Zhejiang Leiya’s product portfolio includes sine wave and off-grid inverters, inverter and gasoline generators, battery and smart chargers and custom-designed products. Its products are used principally in agricultural and industrial vehicles, recreational vehicles, electrical appliances and outdoor living products.

According to Erayak’s prospectus statement, 82% of total corporate revenue hails from power inverters. Chargers make up 8%, gasoline-based generators make up an additional 8% and other products comprise the remaining 2%.

When is the Erayak Power Solution IPO Date?

According to the latest information, Erayak Power Solution will ink its name on the IPO calendar on Dec. 13, 2022. The company plans to list shares on the technology-centric Nasdaq exchange under the ticker symbol RAYA.

In January of this year, Erayak filed its IPO prospectus with the SEC. Back then, management disclosed intentions to raise $15 million through the distribution of 3 million shares. The leadership team listed the price range between $4 and $6 per share. Per Renaissance IPO, Erayak would have commanded a market value of $60 million based on these terms.

However, in November, the power solutions specialist adjusted the deal. Now, Erayak intends to raise $12 million via the same distribution of 3 million shares. Still, management reduced the per-share price to the low end of prior intentions at $4. According to Renaissance IPO, the proceeds will be 24% less than previously anticipated.

While IPO downgrades do occur from time to time – more frequently this year due to sharp macroeconomic pressures – the circumstance likely reflects waning interest. Therefore, anybody that intends to participate in the new listing of RAYA stock should exercise greater-than-normal vigilance.

Another factor to monitor is the broader health of the IPO market. After a blistering, record-breaking performance in 2021, new listings soured in the current year. “According to FactSet data, 1073 companies IPO’d in 2021, raising $317 billion; in the first half of 2022, the total was just 92 companies, raising just under $9 billion,” wrote Sara B. Potter, CFA.

As well, investors must keep tabs on monetary policy before taking the plunge into RAYA stock. Critically, the November jobs report came in much hotter than analysts anticipated. Essentially, the robust employment data indicated that the Federal Reserve’s efforts in containing inflation through raising the benchmark interest rate proved ineffective.

As a result, the Fed may take the gloves off regarding its battle with chronically stubborn inflation. If so, this dynamic bodes poorly for investments like RAYA stock because of the underlying implications of higher borrowing costs. In addition, rising rates often cause investors to adopt a risk-off approach, settling for established, proven enterprises as opposed to aspirational businesses.

What Analysts are Saying About Erayak Power Solution IPO

As a nano-cap investment falling below the critical $50 million threshold, very few experts in the financial sector weighed in on RAYA stock. CapitalWatch notes that Erayak made significant progress since launching its business in 2009. In the years following, the energy equipment specialist grew on an international scale, selling products in Japan, Europe, North America, Australia and other markets.

RAYA stock aligns with relevant and burgeoning sectors. Primarily, according to Allied Market Research, the global power inverter market reached a valuation of $68.2 billion in 2021. However, experts project that this sector will reach $112.7 billion by 2031, generating a compound annual growth rate (CAGR) of 5.2% from 2022 to 2031.

Further, Grand View Research reported that the global outdoor living structure market size hit a valuation of $1.8 billion in 2021. By 2028, revenue in this segment may climb to $2.9 billion. Therefore, Erayak’s power solutions may forge a strong niche in multiple industries, potentially expanding its business footprint.

On the other hand, RAYA stock presents significant risks. Regarding the outdoor living market, it’s worthwhile to note that the unique social transitions that the COVID-19 crisis engendered helped forge new growth opportunities. However, with Resume Builder reporting that 90% of companies will require their employees to return to the office at least part of the week starting in 2023, workplace normalization might crater these opportunities.

In terms of the power inverter market, the underlying application is not exclusive to any one entity. Therefore, competitive pressures may impose a longstanding threat. As well, CapitalWatch points out that Erayak’s top two customers accounted for 27% of total corporate sales. If anything happens to these enterprises, the consequences could be severe.

Erayak Power Solution Financial History

While Erayak’s upcoming IPO raises significant concerns because of its downgraded offering, in fairness, the company ranks well above its speculative peers thanks to its superior financials. Mainly, Erayak brings a profitable business to the table, delivering $2.19 million in net income for the six months ended June 30, 2022. In contrast, in the year-ago period, the company posted $1.41 million in net income.

On the top line, Erayak posted revenue of nearly $11.5 million in the half-year period ended this past June. This tally compared favorably to the little over $8 million rung up in the year-ago comparison. Also, gross profit in the most recent period came out to $3.87 million, up 56.8% year-over-year.

Erayak Power Solution Potential

Fundamentally, Erayak commands a massive total addressable market due to intense demand for energy-sourcing alternatives. For instance, Yale School of the Environment noted that immediately following Russia’s invasion of Ukraine, several European policymakers looked to fast-track clean and renewable energy initiatives. More than likely, impacted leaders will look to further reduce dependencies on hydrocarbon energy sources from unreliable partners.

Moreover, Russia cutting off critical hydrocarbon supplies to western countries indicates that at the moment, Moscow has little intention of realigning itself with standards set by the international community. Therefore, the search for energy alternatives may continue well into the future, cynically benefitting RAYA stock.

At the same time, investors must be extremely careful with growth-oriented enterprises, especially at the current juncture. Again, with the Fed struggling to contain stubbornly high inflation, policymakers there face astounding pressure to take more aggressive action. However, such a request implies even higher interest rates, causing companies that may need additional financing down the line to suffer higher borrowing costs.

While Erayak and similar nano-cap firms can turn to equity financing, this measure risks dilution. Since RAYA stock already rates as a speculative venture, more dilution may be frowned upon by the market.

Where to Buy Erayak Power Solution IPO Stock

If you want to participate in Erayak’s IPO, you’ll need to know how to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of the best brokers to consider.

RAYA Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

RAYA Pre-IPO

For those interested in acquiring RAYA stock at the pre-IPO rate – or the initial offering price which may vary considerably from the eventual open market price – you should open an account with ClickIPO.com.

About Joshua Enomoto

His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.