Although 2020 will forever be associated with the COVID-19 pandemic, coming in a close second in terms of paradigm shifts are the various social disruptions that stemmed from the global health crisis. Most notably, grocery stores and big-box retailers became standing-room only events as people flocked to these establishments to grab whatever essential products they could.
Due to the mad rush, shoppers did not place much emphasis on the quality of the underlying products, even if they were consumables. This circumstance accelerated when the pandemic began affecting food supply chains. According to information provided by the Organisation for Economic Co-operation and Development (OECD), the crisis “imposed shocks on all segments of food supply chains, simultaneously affecting farm production, food processing, transport and logistics and final demand.”
But now that society is gradually acclimating to a new normal, more consumers are interested in health and wellness, particularly as the coronavirus outbreak forced millions into a sedentary lifestyle. Fortuitously and cynically, this development sparks relevancy for the upcoming initial public offering (IPO) of Sovos Brands, a specialist in artisanal, high-quality food products.
When Is the Sovos Brands IPO Date?
Another highly anticipated market debut, Sovos Brands is part of the rush to go public after a relatively quiet period in late summer. On Aug. 27, 2021, Sovos filed its first IPO prospectus with the U.S. Securities and Exchange Commission (SEC). Shortly thereafter, management engaged in a roadshow, or a meeting with prospective investors to drive up interest in the offering and ensure that enough demand exists for the deal.
On Sept. 14, Sovos filed an updated IPO prospectus, providing additional details for its debut. According to the filings, the company will distribute up to 23.3 million shares at a price range between $14 and $16 per unit. The company plans on providing its underwriters the option to acquire 3.5 million shares during the first 30 days of trading.
At the middle of the pricing estimate, Sovos could raise $350 million, which would also facilitate a market valuation of $1.5 billion. Shares will make a mark on the IPO calendar on Sept. 23 when they start trading on the Nasdaq exchange under the ticker symbol SOVO. JPMorgan Chase (NYSE: JPM) and Goldman Sachs (NYSE: GS) provide joint lead bookrunning services and also represent the IPO underwriters.
A competitor in the burgeoning sector of artisanal foods, Sovos offers investors exposure to wide range of premium brands, which are:
- Rao’s: Italian food and sauce brand
- Noosa: Specialty yogurt series
- Michael Angelo’s: Frozen Italian food products
- Birch Benders: Pancakes and waffles
Because of the unique dynamics of the COVID-19 pandemic, millions of Americans found themselves paying more attention to what they put in their bodies. As a result, over the trailing year, some of the hottest names in the IPO market were not just technology-centric names but also companies tied to the food-and-beverage industry.
Such a backdrop bodes well for SOVO stock. However, prospective investors of this new issue should note that not everything in this segment is golden. For instance, avocado wholesaler Mission Produce (NASDAQ: AVO) has generated a 56% return since the close of its first day of trading, while oat dairy specialist Oatly (NASDAQ: OTLY) has fared poorly so far, down nearly 27% since its public debut. Therefore, performing due diligence is a must.
Sovos Brands Financial History
While the artisanal food and beverage segments have become particularly enticing because of massive societal changes during the quarantine period — mainly from the shutting down of restaurants and other high-traffic public establishments — they’re also among the most competitive. Unlike other industries, the barrier to entry is low, forcing every participant to watch its back.
Also, food trends can change, forcing companies to be nimble or risk losing out on revenue-generating opportunities. However, this pressured environment is also the reason why SOVO stock compels investors to at least consider its bullish narrative. For instance, in 2020, Sovos Brands rang up $560 million in revenue, up over 44% from 2019’s tally of $388 million. That’s especially impressive given the intense rivalry that sparked in the grocery aisles.
Better yet, momentum has carried forward into the current year. For the 6-month period ending June 26, Sovos generated $351.2 million in net sales, a total within 10% of the full-year sales result of 2019. Against the half-year period ending June 27, 2020, Sovos was up over 34%, confirming that this artisanal food specialist is on a roll.
Another aspect to consider is profitability. Too many times, a fresh market debut features an organization with an aspirational narrative. That’s not the case with SOVO stock, where the underlying company is already delivering on the bottom line. In full year 2020, Sovos posted net income of $10.8 million, translating to a diluted earning per share (EPS) of 14 cents.
Over the half-year period in 2021, the premium-food specialist posted net income of nearly $10.4 million, which translates to a diluted EPS of 13 cents. These metrics compare favorably to the year-ago level, where Sovos recorded net income of almost $9.1 million or a diluted EPS of 12 cents.
Sovos Brands Potential
If you suspected that the events of the COVID-19 pandemic caused widespread weight gain, your hunch is more than just an anecdotal deduction. According to data from the American Psychological Association (APA), 42% of American adults reported undesired weight gain. Further, the average gain was an astounding 29 pounds.
But it’s more than just poor eating habits. As David Sarwer, Ph.D., director of the Center for Obesity Research and Education at the College of Public Health at Temple University, stated, “The stress, isolation and challenges of making life work over the past year have necessitated changes in our behavior.” Further, Sarwer added, “For those of us in the obesity field, the weight changes aren’t surprising — but they are concerning.”
Naturally, SOVO stock offers a viable opportunity as the issuing company can be a part of the solution. Thanks to Sovos Brands’s focus on high-quality ingredients and authentic experiences that make it a segment leader in the environmental, social and governance (ESG) movement, the firm can not only generate positive fiscal returns but also impart a necessary social change.
But does that mean everything about SOVO stock is a clear win? Unfortunately, the artisanal food market is extremely competitive, with new brands always looking to break in. Further, the APA states that pandemic-related weight gain hasn’t affected all Americans equally, with marginalized communities suffering the most. As well, these communities suffered disproportionate economic impact, thereby limiting opportunities to purchase higher-priced food products.
How to Buy Sovos Brands IPO (SOVO) Stock
As a traditional public market debut, retail investors must acquire SOVO stock at the open in a secondary market transaction. While this process may (but not always) present pricing disadvantages, the benefit to regular investors is that the acquisition procedure is easy if you already know how to buy stocks. If not, follow the steps below.
Step 1: Pick a brokerage.
While any brokerage will allow you to acquire new shares at the open, for those who are serious about building their acumen in ground floor opportunities, you should narrow your list of best brokers to companies that provide select pre-IPO access or shares at their initial offering price.
Step 2: Decide how many shares you want.
While IPOs present an enticing chance for upside, they’re also wildly risky. To mitigate downside risk, choose a balanced share count that will adequately reward you but also won’t send you into bankruptcy court.
Step 3: Choose your order type.
Before trading, familiarize yourself with these market concepts.
- Bid: The buyer’s maximum offer, the bid is always lower than the ask.
- Ask: The seller’s minimum acceptable price, the ask is always higher than the bid.
- Spread: The difference between the price bid and the price asked, the spread also indicates market liquidity and risk. Tighter spreads indicate higher liquidity and lower risk due to a stronger demand profile, while wider spreads denote a low-volume market, entailing higher risk.
- Limit order: A trade request to occur only at a specified price, limit orders provide transparency but no execution guarantees.
- Market order: Conversely, market orders guarantee fulfillment but only at the prevailing rate, which may fluctuate significantly during order processing.
- Stop-loss order: A defensive mechanism, a stop-loss order automatically exits your position at either a predetermined price or anything lower.
- Stop-limit order: Stop-limit orders only execute at a predetermined price, which is the most transparent approach regarding automated exits. However, such orders carry the same non-fulfillment risk as limit orders.
Step 4: Execute your trade.
To execute a market order, follow these steps:
- 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).
SOVO Restrictions for Retail Investors
Before betting on new issues, review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons. In summary, anyone with privileged information should avoid profiteering from it.
Recently, companies like ClickIPO have democratized the rarified traditional IPO process by distributing select pre-IPO shares to its members. Those interested in this field should consider opening an account.
Bringing Nutrition Back to the Table
Following a year of pandemic-related adjustments, most people acclimated well but as collective weight gains demonstrated, the public health crisis wasn’t without lasting consequences. Fortunately, the Sovos Brands IPO enters the stage at the right time, delivering high-quality wholesome ingredients to your favorite grocer.