Is it safe to buy Syensqo (SYENS) stock as it surges on debut?

The Syensqo (SYENS) stock price was one of the shining stars in Europe on Monday as it jumped to a high of €94.02 on its debut. This initial rally pushed its total market capitalisation to almost €10 billion.

What is Syensqo?

Solvay (SOL) is one of the leading European companies and the fourth-biggest one in Belgium after AB InBev, KBC, and UCB. It is a global chemicals company with over 9,000 employees and over €5.9 billion in total sales. 

Solvay manufactures chemicals that are used in key industries like appliances, agriculture, automotive, and electronics. It has over 42 industrial sites around the world.

As part of its growth strategy, the company decided to create a new company called Syensqo, a company that manufactures products for key industries like planes, FMCG, batteries, and smart devices.

Syensqo hopes that it will continue growing in the coming years now that it is out of the shadows of the parent company. It aims to take advantage of its key sectors, which are growing at a fast pace. For example, it has a market in electrification of the automobile sector and advancement in plane making.

Syensqo hopes that it will have between 5% and 7% net sales growth between 2024 and 2028. It also hopes that its underlying EBITDA margin will be mid-20s by 2028.

Is Syensqo a good investment?

Historically, spin-offs tend to do quite well in the long term since they operate independently from their bigger parent company. For example, PayPal has done over the years after being spun off by eBay, the e-commerce giant. 

Most recently, Kyndryl has outperformed IBM, its previous parent company. Mondelez, the giant snack company, has also done better than Kraft Foods after the two separated in 2012. 

However, not all spin-offs do well. For example, Kenvue stock price has crashed by over 24% after its spin-off in June this year. The company was spun out of the consumer health business of Johnson & Johnson.

Similarly, Siemens Energy stock price has plunged hard after being spun out of Siemens Group. The company had to be saved by the German government in the past few weeks as it came on the verge.

Therefore, analysts recommend waiting for some time before you invest in a spin-off. For example, investors should wait for a few earnings reports to get more information about the company’s results.

As such, I suspect that the stock will pull back in the coming weeks or days as the hype surrounding the spin-off fades. This retreat could see it drop below the key support at €90 in the coming weeks.