Is Smart for Life Inc. IPO a Good Buy?

In an unfortunate case of whiplash, the initial governmental response to the COVID-19 crisis was to shut down as much person-to-person activity as possible. Though well-intentioned, the end result of this protocol was a cessation of normal necessary movement. As multiple medical sources can attest, a sedentary lifestyle can lead to all manner of poor health outcomes.

Unsurprisingly, undesired weight gain has been a societal side effect of the pandemic. But it also ushers in the upcoming market debut of Smart for Life Inc., a provider of weight-loss products.

What Does Smart for Life Do?

A comprehensive weight loss and management program, Smart for Life distinguishes itself from the endless array of marketing campaigns catering to the underlying subject through real science. Founded by Dr. Sasson Moulavi in 2002, Smart for Life initially started as nothing more than an eureka moment.

A board-certified bariatric physician who began his medical career as an emergency room doctor in Canada, Moulavi was accustomed to working long hours. Over time, he began putting on the pounds, enough to the point where it forced a shift in perspective. From then on, rather than helping patients suffering from acute problems in the ER, Dr. Moulavi was committed to preventing their admission in the first place.

Today, Smart for Life is a thriving small business employing 100 workers across various specialties. Primarily, the company manufactures a wide range of low-calorie, high-nutrient supplements along with weight-loss kits to help guide consumers to meet their fitness goals.

When is the Smart for Life IPO Date?

Among a growing number of small but compelling businesses launching an initial public offering (IPO) — or the first time a private enterprise distributes its equity shares to retail investors — Smart for Life will make its market debut on Feb. 16, 2022. Shares will trade on the Nasdaq exchange under the ticker symbol SMFL.

Initially, Smart for Life filed its intention to be listed on the IPO calendar back on Oct. 5, 2021. At the time, the filing essentially represented only a placeholder. Subsequent addendums to the Form S-1 document revealed that management plans to distribute 1.8 million shares at a per-share price range between $9 and $11. At the highest end of the spectrum, the weight-loss firm would raise $19.8 million, translating to a valuation of $226.2 million.

Dawson James Securities represents the sole bookrunner for the IPO. The underwriter has a 45-day option to purchase an additional 270,000 shares at the initial offering price. According to Smart for Life’s prospectus, the proceeds from the offering will primarily be used to pay down debt, in addition to general corporate purposes. The company has approximately $6.1 million in outstanding promissory notes and $4.61 million in term loans.

An interesting public market debut, the timing of SMFL stock presents both opportunities and risks. On the more optimistic end of the spectrum, Smart for Life is one of the few small businesses that can legitimately benefit from the realities of the new normal. As several medical institutions have noted, people must place strong emphasis on their mental health in addition to their physical wellbeing.

Naturally, long-term quarantines and mitigation measures have left a deep hunger within the U.S. population to reclaim lost social experiences. Such a dynamic translates to more people desiring to get out of the house — perfectly complementing Smart for Life’s weight-loss regimen and low-calorie snacks and supplements.

Moreover, leading up to the pandemic, a library of research papers have documented millennials' interest in healthy food choices. Of course, during the worst of the pandemic, consumers had limited choices because of global supply chain disruptions, thus contributing to poorer wellness outcomes. Fortunately, Smart for Life’s products facilitate a course reversal.

At the same time, the weight-loss specialist’s IPO is arriving at a rather inauspicious time. The latest read from the consumer price index caught many analysts by surprise, with costs soaring across the board. What’s worse, many businesses could be absorbing the impact of inflation from competitive concerns. Still, this dynamic may not last indefinitely, forcing companies like Smart for Life to raise prices and thus possibly lose customers.

What Analysts are Saying About Smart for Life IPO

According to Smart for Life’s amended S-1 filing on Dec. 16, 2021, it listed a lack of securities industry analysts’ research reports — or unfavorable ratings — as a potential risk factor for SMFL stock.

In its words, “Any trading market for our common stock may be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume of our common stock could be negatively affected.”

Despite a lack of research, it’s not particularly difficult to ascertain the bull and bear case for SMFL stock. Primarily, both supporters and naysayers will be looking to the capitalization of Smart for Life as a core reason for their points of view.

Potentially commanding a market cap of $226 million, this figure will be on the lowest end of what Benzinga contributor Sarah Horvath labels a small-cap stock. Nevertheless, going small could be advantageous as this segment tends to fly under the radar. Therefore, while market volatility could take aim at the flying fortresses that are blue-chip stocks, small caps like SMFL may, in theory, glide beneath the flak.

Further, prospective investors can glean from what analysts say about similar businesses such as WW International Inc. (NASDAQ: WW), formerly known as Weight Watchers International. According to information from CNN Business, among 13 covering analysts, 9 have issued a “hold” rating while 4 have issued a “buy” rating.

On the flipside, a “hold” rating is one that demonstrates little upside confidence — and could easily become a “sell” if conditions warrant it. Again, with an inflationary backdrop, conditions could very well warrant analysts taking a dim view on weight-loss-related businesses.

Mainly, this negative pivot could stem from the concept that consumers can easily cut out pricey nutritional supplements. According to the Bureau of Labor Statistics, “All of the six major grocery store food group indexes increased over the period.” Therefore, consumer cost-cutting will likely aggressively begin soon, if it hasn’t already started.

Finally, it bears reminding that small-cap stocks are risky. Frankly, if they weren’t, they would already be large-cap stocks.

Smart for Life Financial History

Prior to making any decision regarding Smart for Life’s market debut, you will want to conduct a deep dive into the firm’s financial performance. Although the company features some encouraging stats, you must not ignore the risks.

For the full-year 2020, Smart for Life generated net sales of $5.67 million, which was up 56% from 2019’s tally of $3.63 million. Though nominally not a remarkable figure, the company was able to generate growth during the COVID-19 pandemic is a testament to the relevance and desirability of its underlying products.

As well, Smart for Life posted revenue of $4.79 million in the nine months ending Sept. 30, 2021. This amount represented a staggering 241% growth rate against the year-ago level. However, the company also posted a net loss of nearly $4.1 million in the first three quarters of last year, substantially higher than the loss of $1.43 million during the same period in 2020.

In all, the above metrics translate to a loss per share of 30 cents. However, the personal services industry features a median earnings per share of under 17 times, presenting a challenging case for SMFL stock.

Smart for Life Potential

While Smart for Life undoubtedly features many risk factors, the new normal presents a free (albeit cynical) gift for SMFL stock: per the American Psychological Association, 42% of U.S. adults reported undesired weight gain since the start of the pandemic, with an average gain of 29 pounds. Both the scale and scope of this weight gain is remarkable, thus potentially facilitating upside for SMFL.

Combined with the desire among younger demographics to focus on their health, Smart for Life’ weight-loss products and programs enjoy significant relevance. Nevertheless, a hungry user base alone isn’t enough to guarantee success.

One of the biggest concerns for SMFL stock is the lack of a truly distinct business. Weight-loss programs are not novel concepts, and more rivals will surely be on the way.

In addition, Smart for Life could suffer from valuation concerns. Indeed, it may be difficult to convince investors to acquire SMFL when companies like WW International are undervalued against a forward earnings basis. Therefore, you must exercise great caution before taking a shot with this weight-loss specialist.

Where to Buy Smart for Life IPO Stock

Those interested in participating in Smart for Life’s IPO must acquire shares at the open, which necessitates knowing how to buy stocks. But first, investors should consider opening an account with one of the best brokers below.

SMFL Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

SMFL Pre-IPO

Unfortunately, no pre-IPO opportunity — or the ability to acquire shares at their initial offering price — for Smart for Life is available. However, you can check out ClickIPO to review compelling new listings coming up the pipeline.