Mister Car Wash Shares Close Above Their IPO Price

Mister Car Wash NYSE: MCW made its public debut Monday, raising $468 million as shares rallied to $22.40, 49% above the IPO price of $15.

The offering is unique because Mister Car Wash is the only publicly traded company in its business category. 

As of Tuesday, the company has a total market capitalization of $6.277 billion, placing it squarely in mid-cap territory. 

The company priced its shares Friday at the lower end of the anticipated $15-$17 per share range. It offered 37.5 million shares of common stock, with 31.25 million shares offered by the company and 6.25 million sold by existing shareholders. Those sellers included entities affiliated with private equity firm Leonard Green & Partners, which owned the company since 2014.

As is common with many offerings, the investment-banking underwriters have a 30-day option to purchase an additional 5.625 million shares. 

Mister Car Wash does not receive proceeds from shares sold by existing stockholders.

Another Post-Pandemic Play

It’s been said about any number of stocks recently, but Mister Car Wash may well be a “reopening” play.

The timing of the offering may have boosted investor interest; as pandemic restrictions throughout the U.S. ease, more people are going out, and want their cars - perhaps as neglected as their wardrobes during lockdowns - to be shiny and clean. 

Revenue did indeed dip for the full year of 2020, from $630 million to $570 million. Revenue for the trailing 12 months stands at $600 million. Diluted earnings per share came in at $0.20 per share last year, and $0.26 for the trailing 12 months. 

The company separates its revenue into two main streams. The first is its Unlimited Wash Club program, which, as the name suggests, offers unlimited washes for a monthly fee. Customers may cancel the service at any time. 

The second main revenue stream comes from single-transaction car washes.

In December, the company closed the sale of its 27 Mister Oil Change Express locations to Valvoline Instant Oil Change. Terms were not disclosed. 

Mister Car Wash CEO John Lai said, “This sale allows Mister Car Wash to focus on expanding its car washes through new build locations and acquisitions.”

A Familiar Location

Based in Tucson, Arizona, Mister Car Wash operates more than 340 car washes in 21 states. 

Even those who don’t closely follow the fortunes of the car wash business may recognize one of the company’s most distinctive properties: Its location at the Snow Heights Shopping Center in Albuquerque, New Mexico, was featured in “Breaking Bad” as the car wash Walter White purchased as part of a money-laundering operation. It was known as A1A Car Wash in the TV series.

Prior to going public, the company reported earnings per share of $0.08 per share on revenue of $175.5 million, up 167% and 13%, respectively, from the year-earlier quarter.

Other financial metrics are headed in the right direction. The gross margin, operating margin and net margin all grew over the past two years. 

As with many stocks poised for growth, the price-to-earnings ratio may seem rich, at 87.13. However, it’s not unusual to pay for growth in companies that are younger and nimble. In fact, many more mature growth companies also sport seemingly high P/Es, but investors are nonetheless rewarded for taking the risk.

As with any newly public stock, investors are well-advised to wait for the stock to pull into a post-IPO correction. This typically happens not terribly long after a stock goes public. The correction may last weeks, months or even longer. But when the stock goes into a decisive rally, clearing a buy point in heavy volume, that is often a signal that institutions are buying shares at a lower price, and they have conviction the stock will move higher. 

Shares were trading 5% lower Tuesday, at $21.28.