Investing in IPOs, or initial public offerings, is a risky proposition. Typically, companies list on the equity markets to raise capital and fund their expansion plans, which means investors should hope that the management team continues to execute flawlessly while consistently meeting consensus estimates.
So, if a company can deliver on its lofty promises, investors have an opportunity to make money hand over fist. But companies also have to wrestle with macro headwinds, competition, and investor expectations to deliver market-beating gains consistently. In a nutshell, investors with a higher risk appetite can consider investing in growth-focused IPO companies.
One TSX stock that went public in early 2018 was Nutrien (TSX:NTR). In the last five years, NTR stock has returned 37% to shareholders after accounting for dividends. So, an investment of $1,000 in Nutrien’s IPO would be worth $1,367 today. In this period, the TSX index has returned 48%.
But historical returns don’t matter much to current or future investors. Let’s see if NTR stock is a buy or a sell right now.
Is NTR a good stock to buy?
Nutrien is part of the recession-resistant agriculture sector. It produces and distributes 27 million tonnes of potash, nitrogen, and phosphate products for agricultural, industrial, and feed customers globally. Its agriculture retail network servers 500,000 grower accounts allowing it to meet the requirements of a growing population.
Valued at a market cap of almost $40 billion, Nutrien is among the largest companies on the TSX. It is also the world’s largest provider of crop inputs and services and plays a crucial role in helping farmers increase food production sustainably.
Armed with a network of 2,000 retail locations in seven countries, Nutrien offers a range of products and services to farmers. Its agriculture solutions include crop protection products, seeds, and nutrients.
The company emphasized, “By leveraging the competitive advantages of our integrated business model, we are well positioned to efficiently meet the needs of our customers and deliver long-term value for all our stakeholders.”
In 2022, Nutrien reported revenue of US$37.84 billion, an increase of 37% year over year. While adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew 112% to US$12.17 billion, operating cash flow more than doubled to US$8.1 billion in 2022.
Nutrien delivered record earnings last year due to higher fertilizer prices and strong performance from its retail division. Its widening cash flows allowed the company to reinvest in organic growth and return profits to shareholders via dividends and buybacks.
For instance, Nutrien returned US$5.6 billion to shareholders in 2022 in the form of dividends and buybacks.
What’s next for Nutrien’s stock price and investors?
After touching all-time highs in early 2022, NTR stock is down 46% at the time of writing. Analysts expect its adjusted earnings to narrow from $17.63 per share in 2022 to $8.9 per share in 2023 and $8.23 per share in 2024. So, NTR stock is priced at nine times forward earnings, which is quite cheap.
It also pays shareholders an annual dividend of $2.84 per share, translating to a forward yield of 3.6%. Analysts remain bullish on NTR stock and expect it to surge over 25% in the next 12 months.
