Under normal circumstances, average residential real-estate transactions involve considerable give and take. Since a house is usually an individual’s or family’s biggest purchase, they want to be absolutely confident before signing their names on the dotted line. Thus, careful inspections and contingencies have long been part and parcel of the negotiation process.
However, the post-COVID-19 era imposed not only fresh paradigms in healthcare and crisis management, it set in motion profound economic changes that could potentially reshape the business landscape. One of the most conspicuous shifts occurred in the housing market, with buyers rushing to advantage rock-bottom interest rates as the Federal Reserve pulled all monetary levers to keep the U.S. economic machinery afloat.
Naturally, ravenous demand for real estate also presents extraordinary opportunities for downwind industries, particularly companies tied to home renovations. While the unprecedented seller’s market allows listing parties to command ridiculous premiums, a little effort can go a long way in this environment. Therefore, the upcoming initial public offering (IPO) of FGI Industries Ltd., a kitchen-and-bath products supplier, might pleasantly surprise speculators.
How to Buy FGI Industries IPO (FGI) Stock
Interested FGI investors must acquire shares at the open, which necessitates knowing how to buy stocks. Below is a quick guide.
Step 1: Pick a brokerage.
As the best brokers compete on similar financial incentives, focus most on which platforms ideally fit your needs.
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Step 2: Decide how many shares you want.
Every IPO contains risky, particularly the nano-cap variety. Therefore, choose a balanced share count.
Step 3: Choose your order type.
Before trading, learn these market concepts.
- Bid: The buyer’s best offer for a stock.
- Ask: The seller’s lowest acceptable price.
- Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers.
- Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
- Market order: Market orders guarantee fulfillment but only at the current rate.
- Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
- Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.
Step 4: Execute your trade.
Follow these steps to execute a market order:
- Select your action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same sequence for limit orders (but include your execution price).
What Is FGI Industries?
Founded in 1987, the East Hanover, New Jersey-based FGI Industries supplies kitchen and bath products to a global consumer base. Its specialty centers on sanitation-related goods such as sinks, pedestals and toilet seats. In addition, the company has garnered a reputation for bath furniture, shower systems and kitchen cabinetry.
FGI generates revenue through mass retail centers, e-commerce platforms, specialty stores and wholesale and commercial distributors. As of the end of 2021, FGI reported employing 130 people, making it one of the smaller new listings to grace the IPO calendar in recent memory.
When Is the FGI Industries IPO Date?
Set to make its public market debut on Jan. 13, FGI Industries stands among a number of companies proving that despite not yet having completed two full weeks in the new year, the appetite for IPOs remains voracious.
With plans to distribute 2.5 million shares, FGI provided an estimated pricing range between $6 and $8. At the midpoint of this spectrum, the kitchen-and-bath specialist will raise approximately $18 million before deducting expenses relating to the IPO. Further, at this level, the company will command a fully diluted market value of $68 million.
Shares will trade on the Nasdaq exchange under the ticker symbol FGI. The Benchmark Company and Northland Securities represent the joint bookrunners for the offering.
As you know, new stock listings present both tremendous opportunity and the risk of catastrophic financial damage. Famous American investor and entrepreneur Warren Buffett stated, “Be fearful when others are greedy, and be greedy when others are fearful.” Many summarize this sentiment to mean buy low and sell high. With an IPO, the ethos is analogous though not identical: buy early, sell later.
While getting in on the ground floor is an attractive proposition, you should realize that not all IPOs are equal, nor do they universally enjoy an immediate pop higher from investor hype. Specific to FGI stock, its potential $68 million valuation puts the underlying firm in nano-capitalization territory; that is, FGI is one step below the already risky category of micro-cap stocks, which typically feature a valuation between $300 million to $2 billion.
To put it simply, FGI risks falling precipitously if investor sentiment fails to support shares in the early innings. But to be completely fair, a non-zero possibility exists that it could also turn out to be one of the best penny stocks.
Still, another factor to consider is the ability for the broader investor community to support high-risk ventures, especially nano-cap IPOs. On the extreme end of the scale, FederalReserveHistory.org points out that stock trading on margin at least partially contributed to the market crash of 1929. Sure enough, the number of traders using borrowed funds has reached record heights since data was kept, signaling serious concerns.
FGI Industries Financial History
While the most beaten-down homes can still command a pretty premium in this wild housing market, astute sellers have recognized that strategic upgrades can generate lucrative returns on investment. According to the 2019 Remodeling Impact Report from the National Association of Realtors Research Group, a complete kitchen renovation ranked as the highest sought-after attribute among buyers.
Such demand isn’t surprising for Will Rodgers, a real-estate agent based in Virginia, who told NextAdvisor, “A lot of people spend the most time in the kitchen, and I think it’s the best value dollar for dollar.” By logical deduction, companies that supply the necessary goods for an attractive kitchen remodeling should outperform, thus boding well for FGI stock.
Better yet, the idea that the home renovations specialist could perform better under the circumstances of the new normal isn’t just a theoretical musing. Back in 2019, FGI delivered revenue of $126.3 million. But one year later, this figure improved to $134.8 million, or nearly 7% higher. True, such a lift wouldn’t be that remarkable in the pre-pandemic era. But following the global health crisis, any improvement presented cause for celebration.
If that wasn’t encouraging enough, net income in 2020 expanded to $4.73 million, slightly more than a three-times increase from the $1.57 million posted in the prior year. Not surprisingly, then, FGI saw a significant improvement in free cash flow (FCF) to $5.72 million in 2020 from $1.06 million in 2019.
Subsequently, the company’s FCF yield (or its financial solvency ratio) is 10.5%, with metrics above 7% a high ranking. Primarily, a higher FCF yield is ideal because it implies that the underlying business has enough cash flow to meet its obligations.
Still, a major concern rests with the sustainability of this raging housing bull market that has afforded incredible downwind benefits to FGI and its ilk. A decade ago, the average house price was $288,225 against a median household income of $57,623. By the end of 2020, income jumped 17% to $67,521, but housing prices skyrocketed to $389,800.
While many analysts of high-demand markets insist that real estate prices won’t crash, there’s only so much money available in the system.
FGI Industries Potential
Perhaps the most conspicuous hallmark of this searing housing market is the waiving of inspection contingencies. Usually a non-negotiable for the buyer to ensure a wise investment, the new normal dictates any means necessary to get a foot in the door.
Given the frenetic emotions during this real estate spree, more than a few buyers have undoubtedly uncovered less-than-ideal circumstances once they received the keys. Therefore, it’s possible that strong renovation demand could continue once the fervor fades away, auguring well for FGI stock.
Additionally, the Fed raising rates could accelerate such initiatives under the speak-now-or-forever-hold-your-peace thesis. Put another way, if consumers were already thinking about renovating (which isn’t a cheap endeavor), they might as well do it now under a low-borrowing-cost environment.
However, it’s not entirely clear that this housing boom attracted the ideal age demographic. According to Scientific American, COVID-19 caused a baby bust, not a baby boom. Since child rearing may be the central reason why young people buy homes, the lack of population growth implies older demographics supporting housing prices.
And they may not be as incentivized to renovate their homes as ardently as younger folks.
FGI 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.
Not Quite so Turnkey
Thanks to gargantuan demand for real estate, tailwinds have blown downhill for complementary businesses like renovation-related products, boosting the profile of FGI stock. However, nothing lasts forever, implying challenging waters may lie over the horizon.