A chain is only as strong as its weakest link. Hackneyed beyond redemption, the phrase has enjoyed remarkable syndication, disseminated from the locker room to the boardroom. But what it lacks for originality it makes up for in permanent relevance, which may be the case for the scheduled uplisting of Transphorm Inc.
Specializing in advanced semiconductor technology, Transphorm broadly focuses on the efficiency of energy transfers. Admittedly a pedantic topic at first glance, the ability to maximize the conversion of raw materials into usable power could make or break the global pivot to clean and renewable energy sources.
While the headline print focuses on emerging innovations such as wind and solar energy infrastructures and the increasing integration of electric vehicles, not enough attention is paid regarding the effectiveness of said advancements. Indeed, with “analog” mechanisms such as combustion-powered cars improving in both performance and energy efficiency, the onus is on novel solutions to justify their existence and continued financial support.
Essentially, Transphorm is the specialized running shoes that elite sprinters like Usain Bolt wear to set blistering world records. Thus, investors ignore it at the possibility of missing out on an underappreciated opportunity.
What Does Transphorm Do?
A global semiconductor firm, Transphorm focuses on gallium nitride (GaN) devices for high-voltage power conversion applications. According to research published by the Institute of Electrical and Electronics Engineers, gains in performance for silicon power devices “have slowed as the technology has matured and approaches its theoretical limits.”
In contrast, GaN devices “have emerged as a possible replacement for silicon devices in various power conversion applications and as an enabler of new applications not previously possible.” This latter point is particularly important for Transphorm’s viability as an uplisted enterprise as its power conversion applications can actualize innovations that previously smashed against a technical capacity barrier.
Founded in 2007, Transphorm has attracted multiple investments and partnerships with leading international tech giants, including Fujitsu Ltd. (PINK: FJTSY) and Yaskawa Electric Corp. (PINK: YASKF).
When is the Transphorm IPO Date?
Set to list on the Nasdaq under the ticker symbol TGAN on Feb. 22, 2022, Transphorm is technically an uplisting or a move from the over-the-counter (OTC) market to an established stock exchange rather than an initial public offering (IPO). Since the Nasdaq debut does not represent the first time Transphorm’s equity shares were available to the public, it lacks the typical pomp and circumstance associated with high-profile IPOs.
But in principle, the semiconductor firm’s uplisting is just as significant as a capital market debut because of the visibility factor. In contrast to popular misconception, the OTC market is not an exchange but rather a broker-dealer network where parties directly negotiate the terms of the transaction. Put another way, OTC trading is decentralized, lacking any administrative oversight.
True, the advent of blockchain-based cryptocurrencies has brought to the forefront the concept of decentralization as a positive development. In reality, neither decentralization nor centralization command a moralistic ethos. Both directives feature their own set of pros and cons that investors must recognize before committing any cash outlays.
In general, though, equity investors prefer the centralized administration of an established exchange like the Nasdaq. From structural integrity to higher liquidity rates to superior bid-ask spreads, exchange participants enjoy myriad benefits and conveniences. In turn, this dynamic facilitates wider visibility, allowing listed companies to more easily advertise themselves to the public.
Therefore, Transphorm’s inclusion into the IPO calendar as a fresh Nasdaq-listed enterprise represents a huge victory for the company. Usually, investors don’t dig through the OTC directory — which according to some estimates features over 12,000 stocks — because of the time expenditure involved. Rather, many individual traders wait for analyst recommendations, which largely zero in on exchange-listed opportunities.
In addition, the timing of Transphorm’s spiritual IPO is intriguing because of unprecedented demand. Back in 2020, U.S.-based new listings totaled a valuation of $168 billion. Last year, this tally exceeded $301 billion based on information provided by Reuters. Combined with dramatic interest in other risk-on asset categories such as virtual currencies and non-fungible tokens (NFTs), it’s not inconceivable that retail investors would take a shot on TGAN stock.
However, the counterparty to the above narrative is global economic stability. At home, the U.S. Federal Reserve must deal with rampant consumer inflation, a vexing dilemma that if left untouched risks inflaming an already truculent political landscape.
Abroad, the rapidly deteriorating situation in eastern Europe has seen Russian financial markets collapse along with a plummeting of the U.S. futures market, per Benzinga staff writer Michael Cohen. Needless to say, armed conflict in the heart of Europe would not be conducive for an IPO.
What Analysts are Saying About Transphorm IPO
Presently supporting a market capitalization of $362 million, TGAN stock is nowhere near the most speculative investment you can own. However, as Benzinga contributor Sarah Horvath noted, small-cap stocks typically feature a market value of approximately $300 million to $3 billion. Though not set in stone, Transphorm is flirting with the lower end of this range.
As a result, TGAN stock doesn’t feature a robust mix of analyst opinions. Nevertheless, the opinions that are available are resoundingly positive. Of the four analysts that cover Transphorm, the average rating is a buy. Better yet, the average price target for TGAN is $10.25, more than 42% higher than the $7.20 price it closed at just prior to its Nasdaq listing.
Although four is hardly a crowd, it’s not too difficult to realize why few analysts have publicly disseminated negative commentary on Transphorm’s prospects. According to Inside Energy, a significant amount of potential energy is lost in the total supply chain originating from resource extraction and ending in commercial and residential power distribution.
For instance, in the upstream segment of energy resource extraction, the laws of thermodynamics — particularly relating to the concept of entropy — only allow two-thirds of the energy in raw materials to transfer to the power grid in the form of usable electricity.
Further, distributing stored electricity to end users results in further energy loss. Unlike the fictional city of Springfield that The Simpsons brought to fame, most people don’t live right next to a power plant. Instead, extracted energy must travel across many miles to reach its ultimate destination. In total (from transmission and distribution), this movement comes at a 6% loss of energy.
But thanks to Transphorm’s research and development in GaN-based applications, the company can essentially extract a refund from the rounding errors that permeate all transfers of electrical power. Thus, as Transphorm’s press release states, its innovations can mitigate wasted energy in various functionalities — “be it a mobile or laptop charger, an electric vehicle drive train or charger, storage and retrieval of energy in battery banks, renewable energy, motion control and robotics.”
Transphorm Financial History
Although the narrative undergirding Transphorm is undoubtedly compelling, prospective investors must conduct a thorough analysis of the company’s financials. It’s here where unbridled optimism gets a necessary splash of cold water.
With Transphorm specifically, the main positive is its growth trajectory. Following an understandably ho-hum performance in 2020, the company generated revenue of $21.6 million. No, it’s not a staggeringly impressive haul, but it’s nearly double what the semiconductor firm was able to produce in 2019 ($11.93 million) and 2020 ($11.4 million).
The bottom line, though, is where prospective investors must direct their focus. On one hand, the company is currently struggling with profitability, pinging net losses in the last three years. But on the other hand, in 2021, Transphorm significantly pared those losses. As well, in the third quarter of 2021, it managed to generate positive net income of $6 million.
Moving forward, the tech firm must accelerate revenue growth and post more quarters of positive earnings. With the COVID-19 pandemic steadily fading into the rearview mirror, Wall Street will be short in accepting excuses for underperformance.
While electricity is the same the world over, not too many people realize that gross disparities exist in electric power transmission and distribution losses. For instance, while the U.S. sees an average of 6% energy loss through transmission and distribution, Albania suffers a 24% loss. That’s a staggering delta, suggesting that Transphorm’s technology and applications should command a vast total addressable market.
But the flipside to the above argument is again geopolitical headwinds. China produces more than 95% of the world’s raw gallium. Not surprisingly, the U.S. government labeled gallium as one of the 35 elements which represent a national security concern.
Therefore, the conflict in Ukraine is hardly an isolated issue. Since Russia and China have forged closer ties, it’s well within reason that a tepid response to the former’s aggression could inspire the latter to invade Taiwan, possibly sparking a global catastrophe.
Where to Buy Transphorm IPO Stock
Interested participants must acquire Transphorm shares at the open, necessitating knowing how to buy stocks. This action is easier than ever thanks to the rise of connected technologies, resulting in the best brokers below.
TGAN 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.
As an uplisting, TGAN unfortunately does not offer a pre-IPO round. However, those interested in early bird opportunities should open an account with Freedom Finance.