Birkenstock IPO 👡Germany shoes producer will debut on NYSE tomorrow 🕤

German footwear brand Birkenstock will become one of Europe's oldest publicly traded companies tomorrow. Its origins date back to the second half of the 18th century, although the popularity of its products grew by leaps and bounds in the 1960s on the wave of the hippie movement and... quite recently, on the wave of the 'Barbie' movie in which its shoes appeared. Will Birkenstock manage to capitalize on the positive momentum and turn popularity, solid growth and improved margins into stock market success? Investors are gearing up for one of the five biggest IPOs since 2022. Birkenstock shares will debut on the New York Stock Exchange tomorrow, Wednesday, October 11.

Great product - stock up?

Birkenstock is famous for its patented, foot-fitting, natural insole. It's thanks to it that it can successfully run its campaign as the 'World's Most Comfortable and Healthiest Footwear'. There's a reason why global conglomerate LVMH, through its L Catterton fund, still bought a controlling stake in the company in 2021. Will all this transform into a rising stock price and a successful debut in US stock market?

Although concerns about the continued momentum of the global economy exist, consumers in the markets of the developed world, where Birkenstock is currently available, still seem ready to pay a lot (and maybe even overpay?) for quality footwear that would improve daily comfort and health. No one disputes that the company has a great product - its stock market valuation, however, may become a largely separate story from it.

Increased market caution over concerns about the health of the global economy and growing risks for consumers in an environment of higher interest rates have not prevented investors from expecting a valuation of the German maker of the 'world's most comfortable shoes' of around $10 billion. The company could then raise as much as $1.6 billion in additional funds to finance further expansion. Looking at the largest German shoe manufacturers, that's nearly $2 billion more than Puma's valuation, but still three times less than Adidas. 

The current valuation suggests that the company is aiming for a valuation characteristic of some luxury brands, which have 'wide moat' - competitive advantages and a product that generates high margins and enjoys, at the very least, satisfactory demand even in weaker economic periods. Birkenstock appears to meet a number of fundamentals that could lead to further global expansion. In the long term, the company's prospects look encouraging, but in the short term, the valuation could fluctuate significantly. 

LVMH to increase stake in Birkenstock?

The luxury business status of Birkenstock suggest not only LVMH's stake, but also the appointment of Alexandre Arnault (son of LVMH's holding company chairman and one of the world's richest men) to Birkenstock's board of directors. Financière Agache, an office of the Arnault family, has expressed interest in buying more shares worth up to $325 million (probably another more than 3% stake). A Norwegian sovereign wealth fund and Durable Capital Partners have also expressed interest in buying shares worth about $300 million.As of mid-September, Birkenstock is already the fourth major company to debut on the US market.

The chipmaker Arm's shares have seen a 10% drop from its IPO price, Instacart has lost more than 20%, and the marketing company Klaviyo's shares are trading flat relative to its debut day price. If Birkenstock's shares also prove to be materially overvalued as early as IPO day - the risk premium could be considered modest and eventually lead to depreciation until demand and supply stabilize at levels that create more room for further growth. It's also worth bearing in mind that speculators may be overly active on the day of the debut - if sentiment in the broader stock market is upbeat, we may see buying euphoria at the very opening. Are investors still willing to 'overpay' for quality stocks? We will find out tomorrow. 

Eryk Szmyd Financial Markets Analyst XTB