This AI Stock Has Soared Since Its IPO

Having gained 50% since its IPO just under two months ago, what’s next for this innovative AI stock?

OneStream [OS] is a developer of artificial intelligence (AI)-enhanced software for financial management, with a particular focus on financial consolidation, planning and reporting.

Its share price has climbed steeply since it listed in July. Investors will be taking note: research from Nasdaq shows that companies outperforming their benchmark two months after listing can go on to post large gains over the long run.

OneStream’s Market Debut

On July 24, OneStream listed on the Nasdaq, selling 24.5 million shares at $20 each — above its target range of $17–19. This raised the company $490m and valued the business at $4.6bn.

OneStream’s shares opened their first session of trading at $26, 30% above their IPO price, and closed at $26.85.

Since then, OneStream’s stock has continued to make steady gains. Its share price hit an all-time high of $32.49 during the September 4 session, having gained 62.45% since the IPO, though it closed the day at $29.57. OneStream’s share price closed September 17 at $30.04, 50.20% up from its IPO price.

The September 4 peak followed on from the announcement of Q2 results after markets closed on September 3, the first published since the IPO, though covering the period before it took place.

While the stock closed September 4 down 3.87% on the previous session, notwithstanding the mid-session spike, analysts were encouraged. OneStream is “seeing momentum in International, a key growth area, as well as notable demand from its AI offering (Sensible ML)”, wrote Baird analyst Rob Oliver in a note as he increased his firm’s price target from $32 to $35.

OneStream: Competitor Comparison

According to Gartner, two of OneStream’s key competitors are BlackLine [BL] and Workday [WDAY]. Like OneStream, both create software solutions focused on streamlining financial operations and management.

BlackLine specializes in automating accounting processes, such as reconciliations and financial close, while Workday offers cloud-based solutions for financial management, human capital management and analytics.

All three stocks are quite evenly priced on the basis of sales; OneStream is twice as expensive as BlackLine compared to trailing sales, but it is expected to post twice as much sales growth next year. Workday is in-between, both in terms of its expected revenue growth and P/S ratio.

OneStream made a loss of $0.05 per share during its Q2 2024, and analysts polled by LSEG expect it to break even in Q3. Its forward P/E ratio based on 2025 estimates is 380; BlackLine’s equivalent figure is 55.21, while Workday’s is 103.82.

OneStream Stock: The Investment Case

The Bull Case for OneStream

Not only did OneStream price its IPO above its target range, but its share price performance since then bodes well for its long-term prospects.

In 2021, Phil Mackintosh, Chief Economist and Senior Vice-President at Nasdaq, presented a study of post-IPO performance which showed that the performance of newly listed stocks appears to diverge significantly, beginning approximately one month after their debut.

One month in, 25% of newly listed companies tend to beat the market by more than 10%, while 20% trail it by 10% or more. These numbers rise to 34% and 32%, respectively, after three months, with the percentage of companies whose performance is within 10% of their benchmark falling from 55% after one month to 34% after three months.

The Russell 2000 has fallen 1.68% since close on July 23, the day before OneStream listed; since it opened, OneStream has gained 16.92%. It is therefore outperforming its benchmark by 18.60%, putting it comfortably into this top cohort of performers post-IPO.

Mackintosh showed that the top 30% of performers tend to outperform significantly over the long term, with the eighth decile typically outperforming the benchmark by 25% after three years and the top 10% posting market-adjusted returns of over 300%.

There is no guarantee that OneStream will remain in this top 10–30% of performers over the long run. However, its strong start will be encouraging to investors, given that after 1–3 months many debut stocks begin to lag behind their benchmarks.

The Bear Case for OneStream

That said, some companies have made a fast start in the months immediately following their IPO, then flopped.

Shares of Peloton [PTON], an exercise equipment and media company, gained nearly 20% in their first two months trading, and one week after this were over 40% up post-IPO. On December 24, 2020, 15 months after listing, the shares peaked at 549.73% above their first day close.

They are now more than 80% below their opening price.

This underscores the fact that it is still early days for OneStream, especially as it is not yet turning a profit. Investors should consider the risks and conduct thorough independent research before making any investment decisions.

Conclusion

OneStream’s performance since its IPO has been eye-catching, and analysts are clearly impressed by its single earnings release to date. However, investors should remain cautious.