Could the Youfoodz (ASX: YFZ) takeover offer indicate a bubble?

Convenience and e-commerce was a definite trend during 2020, but could it all be about to end?

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It’s been roughly 16 months since the COVID-19 pandemic took hold in Australia, spurring the public to embrace new ways of living. And what takes hold in the public sphere generally makes it to the market.

While some of us were stuck at home, several Initial Public Offerings (IPOs) hit the market ready to take advantage of popular cultural shifts triggered by lockdowns. But, it seems, all trends must come to their natural end.

Does Youfoodz Holdings Ltd‘s (ASX: YFZ) takeover offer mark the end of the bubble of share price gains for commerce and consumer convenience companies?

Yesterday, Youfoodz recommended its shareholders accept a scheme implementation arrangement pitched by its competitor Hellofresh that would see those who bought into the company at its IPO lose 38% of their investment.

An analysis by the Australian Financial Review‘s Tom Richardson claims it’s a sign a pin is coming for the COVID-19 shares bubble.

Can COVID-19 IPOs stand the test of time?

In March 2020, when the door to the outside slammed shut, many Australians took to freshly propagandised trends.

Maybe you gained a solid appreciation of sourdough, whipped coffee, and at-home fitness programs. Or, perhaps, you spent hours on TikTok, splashed out on food delivery services, and perused the never-ending catalogue of online retail.

While the world was staring out the window, the ASX was awash with IPOs making the most of the boom in convenience services and e-commerce.

Ready-made meal provider Youfoodz debuted on the ASX in December, just months after e-commerce companies Adore Beauty Group Ltd and Mydeal.ComAu Pty Ltd did the same.

The Youfoodz share price’s journey

Youfoodz’ prospectus outlined that it had never raked in a profit. However, it aimed to list with a market capitalisation of around $201 million, selling its shares for $1.50 during its IPO.

But the Youfoodz share price never hit $1.50 on market. Its highest point saw its shares swapping hands for $1.32.

Youfoodz’ shares have fallen 13.8% since their first session on the ASX — when they closed at $1.05.

Now, its board has unanimously recommended shareholders accept Hellofresh’s offer of 93 cents per share.

That represents an 82% premium on the Youfoodz share price’s previous close but a 38% discount on its share price in its prospectus.

Other shares that debuted during COVID-19

As Richardson points out, online retailers Adore Beauty and Mydeal have also flopped dramatically from their IPO share price.

Adore Beauty placed a $6.75 price tag on its shares during its October IPO. The Adore Beauty share price soared to $6.92 on its first day on market but has since dropped 24.7%.

Mydeal also completed its IPO in October. Investors could buy Mydeal shares for $1.00 at that time. Despite hitting as much as $2.20 during its first session on the ASX, the Mydeal share price has since fallen 59.1%.

Richardson believes when vaccines came to fruition, the market began seeking stable, long-term investments, leaving the COVID-19 fads behind.

Whether the new downward trend will continue for companies like Youfoodz, Adore Beauty, and Mydeal is yet to be seen.

Youfoodz share price snapshot

Youfoodz’ time on the ASX has been a rollercoaster ride – its share price has fallen 13% since it listed.

The company has a market capitalisation of around $122 million, with approximately 134 million shares outstanding.

Should you invest $1,000 in Youfoodz right now?

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. 

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Adore Beauty Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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