Fruitas Holdings (FRUIT) IPO

Fruitas is getting ready for an IPO. Fruitas is planning to offer 533,660,000 shares with an over-allotment option of up to 68,340,000 shares, which will be priced at a maximum of P1.99 apiece. This would raise up to P1.2 billion in total for the company.

Recent news said that the IPO price has come down to P1.68 per share and planning to raise up to P1.01 billion by selling up to 602 million shares to the public.

Let us review the offer and see if we can find any value into this investment.

Fruitas is behind some of the popular brand food carts and kiosks that you can find inside the malls. The allure to the investing public, especially the normal “Juans” with this IPO is because its food. The growth rate presented in its prospectus is something to be curious about too.

The company has been expanding its store network aggressively in the past three years, growing by an average of 32 percent annually from 414 stores in 2016 to 949 this year.

In terms of its financial record, total revenues grew by an average of 72 percent per year from P310 million in 2015 to P1.6 billion in 2018.

The strong growth in revenues boosted FRUIT’s net income to grow by almost 10 times from only P13 million in 2015 to Php100 million in 2018, or an average increase of 96 percent per year.

96% per year is no laughing matter.

This year, FRUIT reported that its net income grew by 33 percent for the first six months of the year to P51.9 million from P38.9 million from the same period last year on the back of 29.6 percent growth in total revenues of P941 million.

While most people who are currently predicting what would happen in the future for Fruitas (because of its high growth rate). I would rather stay conservative and think of some qualitative metrics before we go to the math of things.

Quality of the Business

Fruitas has no competitive advantage. Its main advantage is the branding and its connection to its customers. But branding is hard to value. How much would another food cart company have to spend to compete with Fruitas? Probably not much or about the same amount Fruitas spent. And because of that, it doesn’t have any competitive advantage.

Low barriers to entry. Food cart is a low barrier to entry business. I wouldn’t want to be in a business where anyone can start it. I know how hard it is because I did own a business in that nature. Your profit will depend on your dumbest competitor.

Having said that, even if the growth rate is 96%, by value investing principles, it means nothing. Because anytime, anyone can start a company and drive that growth to a halt. Even at its current state, Fruitas only has 6.4% profit margin, already squeezed because of tough competition.

The Numbers of Fruitas

Lets just do a simple calculation. Fruitas’ valuation based on its IPO price is P3.2 billion. They earned P100 million last year in net income. A drop from P174 million a year before. That’s a P/E of 32. Would you buy a business that is worth 32 times its annual earnings? And those earnings are dependent on just the brand of the business. Its a food cart business that has low barriers to entry that has somewhat ok brand. Would you buy it?

I guess I’ll pass.


  1. The strong revenue growth is brought about their aggressive expansion, other words just more stores. What I’d like to know is the same stores growth. Does the revenue of the same stores back in 2016 or earlier still growing? If that’s the case then, the business could be sustainable.

  2. Totally agree! Based on the Earnings multiplier alone for me it was a hard pass.
    As Graham says I.P.O.s means “Its Probably Overpriced”

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