Contributor, Benzinga
August 23, 2021
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While physical retailers may not want to hear it, e-commerce is perpetually on the rise. Not only that, the COVID-19 pandemic afforded a free marketing campaign for online businesses, with the public health crisis forcing people from the shopfront to the laptop. However, delivery services are expensive because of the so-called last mile problem, providing a cynical lifeline to the brick and mortars.

But even that notion is not dependable thanks to Xos, an electric commercial transportation firm. Specializing in medium- and heavy-duty vehicles, Xos offers reliable, cost-effective package carrier services that bolsters its recent initial public offering (IPO).

When is the Xos IPO Date?

On Feb. 22, 2021, Xos announced that it will become a public entity via a merger with NextGen Acquisition Corp, a special purpose acquisition company (SPAC). Also called blank-check firms, SPACs have no underlying businesses. Instead, their sponsors initiate their own IPO with the ultimate purpose of identifying a merger target and combining with the entity.

At the time of the announcement, analysts estimated the business combination to have a value of $2 billion. The terms of the deal provided Xos “with $575 million in gross proceeds, including a $220 million private investment led by Janus Henderson Investors and a consortium of truck dealers led by Thompson Truck Centers,” according to a Reuters report.

Bank of America (NYSE: BAC) served as the exclusive financial advisor to Xos, while Goldman Sachs (NYSE: GS) played the same role for NextGen Acquisition.

On Friday, Aug. 20, Xos made its debut on the Nasdaq exchange under its own corporate brand and ticker symbol, XOS. Though one of the most hotly anticipated IPOs — as evidenced by strong traffic results on various social media platforms — XOS had a forgettable introduction.

The equity unit opened the Friday session at $8.64 and popped briefly higher to $9. But from then on, the circumstances shifted toward damage control, with the bulls desperately attempting to implement a support channel for the stock. That support finally came, though at a costly closing price of $7.55, down 14.5% for the day.

For the year, XOS is staring at a 25% loss, whereas against its post-merger-announcement closing high, shares are down nearly 46%, a staggering fall from grace. If anything, the disappointment confirms that you should exercise patience and discretion with certain IPOs. But also for the speculator, the downgrade may bring up the possibility that XOS is a discounted opportunity.

Xos Financial History

Typically, fresh technology-related enterprises making their market debuts will do so under the description of pre-earnings companies. But for Xos, the company is a pre-revenue business, which requires even more optimism from would-be investors. Moreover, management posted vague remarks about the potential for sales, merely stating on its Form 10-Q for its 1st-quarter disclosure that Xos “will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest.”

It’s very possible, then, that some of the underperformance of XOS stock on its debut stemmed from fears that the issuing company would fall short of its objectives. Truthfully, like any IPO, Xos carries tremendous risk and arguably more so than your typical debut. Not only is the commercial electric vehicle (EV) firm focused on next-generation technologies that may or may not pan out, SPAC-based IPOs have so far this year conspicuously lagged the performance of benchmark equity indicators.

But before you toss XOS stock as a potentially profitable idea, you should note that “Xos claims a backlog of 6,000 orders, including an order for 100 trucks from Thompson Truck Centers, a subsidiary of Thompson Machinery, headquartered in Nashville, Tennessee.” Further, the 2 firms plan to build “1,000 medium- and heavy-duty trucks over the next three years.” And on the Xos website, management states that its trucks and powertrains are “on the road right now” with enterprise-level clients like Loomis and Wiggins Lift Co.

Most importantly, Xos features a strong balance sheet, with total assets measuring $375.4 million against total liabilities tallying up to $48.6 million for the 2nd quarter of this year. Backing out liabilities, Xos has a net worth of nearly $327 million, whereas its market capitalization following Aug. 20 stood at $353.9 million. Therefore, shares are trading within 8% of Xos’ net value, which may attract bullish gamblers.

Xos Potential

Though incredibly convenient, customers consistently complain about the costs associated with online deliveries. Ironically, it’s the proverbial last mile that contributes the most to the expense. That’s because the final component of a parcel’s delivery route consumes a larger portion of the human element — drivers going door-to-door delivering your packages while struggling through stop-and-go traffic to accomplish this task.

But through commercial EVs, Xos can sharply mitigate these costs thanks to 3 key advantages of the electric platform:

  • Lower operational costs compared to fossil fuel-based transportation
  • EVs with fewer moving parts and are therefore easier to maintain
  • Exponentially higher efficiency in suburban routes due to regenerative braking

While incredibly promising, prospective buyers should also note that EV battery costs have been consistently declining every year. For instance, the average cost for a 1 megawatt-hour (MWh) EV battery pack was $160 per kilowatt-hour (kWh), representing a 32% savings from the $236 per kWh it cost in 2017. However, by 2025, battery packs may cost $110 kWh, a 31% savings from 2020 averages.

Though this trend may sound like a positive for the environment and the EV industry, consider what it entails for a client enterprise. Why secure a contract for commercial EVs today when you can wait a few years and enjoy double-digit cost savings per each vehicle?

Having said that, the last-mile problem may be so costly for high traffic-running companies that it may be worth taking the plunge now. Therefore, XOS stock presents an intriguing balance between current cost structures and forward upside potential.

How to Buy Xos IPO (XOS) Stock

Under a traditional IPO process, financial underwriters purchase the soon-to-be-public entity’s newly issued shares for distribution to their choicest clients, almost always institutional investors like mutual funds. Known as a primary market transaction, it’s the first time shares of a company exchange hands publicly.

For retail buyers, though, they must usually wait for shares to hit the open market, a secondary market transaction. Thus, one of the attractive attributes of SPACs is that by acquiring such shares pre-announcement, they are on equal footing with privileged investors of traditional IPOs.

Also, buying SPACs is a straightforward process, especially if you already know how to buy stocks. If not, follow the steps below.

Step 1: Pick a brokerage.

In the analog days, brokerages competed with each other based on costs of entry. Today, the influx of rival offerings along with the broader integration of mobile technologies means that key financial incentives — such as commission-free trading — have become standardized. Therefore, you should consider platforms that offer you convenience and access to various financial products.

Below is a list of best brokers to consider.

Step 2: Decide how many shares you want.

As demonstrated earlier, IPOs are risky business. To mitigate potential volatility, you should choose a balanced share count, one that affords you solid rewards if your wager pans out but won’t leave you destitute if it doesn’t.

Step 3: Choose your order type.

Before trading, familiarize yourself with these market concepts.

  • Bid: The highest price a buyer will offer, the bid is always lower than the ask.
  • Ask: The lowest price a seller will accept, the ask is always higher than the bid.
  • Spread: The difference between the bid and ask price, the spread also signifies market liquidity and risk. Tighter spreads suggest higher liquidity and lower risk from higher participant interest, while the opposite principle applies for wider spreads.
  • Limit order: To buy (or sell) stocks at a particular price, choose limit orders, which offer transparency but no execution guarantees.
  • Market order: In contrast, you can guarantee fulfillment via market orders but only at the current rate, which may fluctuate wildly during a session.
  • Stop-loss order: A protective function for your portfolio, 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, guaranteeing total transparency in your automated exiting procedure. However, such orders carry the same nonfulfillment risk as limit orders.

Step 4: Execute your trade. 

To execute a market order, follow these steps:

  1. Select your action type (buy or sell).
  2. Enter the shares you want to acquire (or sell).
  3. Hit the Buy (or Sell) button.

Follow the same sequence for limit orders (but include your execution price).

Xos Restrictions for Retail Investors

Before jumping on an IPO, review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons. In short, you cannot illicitly advantage privileged information.

XOS Pre-IPO

For companies going public via the traditional route, services such as ClickIPO acquire shares of select entities and distribute them to interested public buyers at their initial offering price (known as pre-IPO shares). Serious early bird investors should consider opening an account with ClickIPO.

The Challenges of Electrification

On paper, Xos’s bullish thesis seems unassailable, particularly as government agencies worldwide focus on clean transportation solutions. However, because EVs represent a still-nascent technology, it’s inevitable that EV-related IPOs will encounter headwinds. Still, the onerous costs of the last-mile problem may be enough to swing the needle in favor of XOS stock.

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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.