What’s Going On Here?Polish ecommerce phenomenon Allegro hit the stock market on Monday – and its immediate 63% price rise suggests the company also hit the right note with investors. What Does This Mean?Poland’s largest-ever initial public offering saw Allegro raise $2.3 billion at an $11 billion valuation, instantly becoming the country’s biggest stock. Just a few hours later, however, the company was already worth $18 billion.
Allegro’s lively first-day movement appeared due to global investor appetite for Eastern Europe’s early-stage answer to Amazon. With just 8% of Polish retail sales currently conducted online versus 20% in the US, the stage is set for growth to crescendo. And while Allegro is competing with the American giant, its investors are betting the firm’s local focus will help maintain its market-leading position. Why Should I Care?For markets: Expensive business.
One popular way to compare etailers’ valuations is the “enterprise value (EV) to sales” ratio; given that their high cost of growth often leads to losses, such sales-based metrics are typically more useful than profit-based ones. To calculate a company’s EV, you add its stock market value to its debt and subtract any cash in the bank. The ratio shows Amazon is worth four times its sales, and China’s Alibaba seven – while Allegro, valued at 20 times its annual revenue, is the most “expensive” ecommerce stock in the world (tweet this). In other words, the company’s current share price already anticipates a lot of future growth – and if it doesn’t deliver, its stock might quickly fall.
The bigger picture: Everyone wants in.
Allegro’s imminent inclusion in major European stock indexes will trigger up to $300 million worth of additional demand for its shares from exchange-traded funds which automatically invest in such indexes’ companies. The biggest beneficiaries of the frenzy, however, are the private equity investors who continue to own the majority of Allegro’s stock… | 
