The Best Investment in 2025 (So Far...) Isn’t What You Think

0:04Tyler Crowe:The best investment in 2025 so far, and a dive into upcoming IPOs. This is Motley Fool Money.

0:20Tyler Crowe:Welcome to Motley Fool Money. I'm Tyler Crowe, joined by longtime Fool contributors Matt Frankel and Jon Quast. Today, we're going to dig into some pre-IPO filings because it's going to be a busy week next week. And some of the companies are actually ones that we like. We're going to continue the discussion about Figma from yesterday's show after their post earnings report drop that happened today. But before we get to all that, we're surprisingly close to the fourth quarter. I mean, Matt, you and I, we're sending kids to school. John, I don't know if you're sending your kids to schools yet, but that kind of gets you in a little bit of, wow, the end of the year is coming up quick here.

0:56Tyler Crowe:And so we're going to do a way too early look back at the best investments in 2025 so far, because it's been a wild ride for the markets. I mean, the S &P 500 was down almost 14 % at one point in April. I think it was Liberation Day tariffs and all that other stuff that really sent the market rocking. But as of this taping, it's up just under 10 % year to date and is on pace for a better than average year for the S &P 500. Surprisingly, one of the best performing assets this year isn't MAG7 or anything like that. It's gold. And frankly, it's not even close. John, you kind of showed us some of the numbers before we got started here.

1:38Tyler Crowe:It'll be a hard ask for the S &P 500 to catch up to gold.

1:43Matt Frankel:Yeah. I mean, as you brought up, Tyler, the S &P 500 up about 10 % year to date, That's a good year. Bitcoin, digital gold, so-called digital gold, up 21 % year-to-date, but gold itself up 36%. Who'd have thought that? And on top of that, because of gold's appreciation, you have a stock like Newmont, ticker symbol NEM. It's more than doubled year-to-date. And in the S &P 500, only three of the constituents have doubled this year. That's Palantir, seagate and newmont that is as out of a trio as i could possibly think of yeah i mean an ai

2:26Tyler Crowe:government data intelligence company a data storage kind of like memory disk company and then gold mining yeah that's a that's a fun trio they've got there now when we talk about we've seen the rise in gold and in the rise in in newmont stock is this like some wild valuation we're talking about here where everyone's bidded up Newmont mining stock to the moon because everyone's scared of something?

2:50Matt Frankel:No, not really. I mean, Newmont's profits are pretty good this year. The cost to get the gold out of the ground is way less than what the gold is worth. So it's only trading at about eight times enterprise value to EBITDA. That's not that bad for a gold stock. And when you think about it, its production is down a little bit, but it's because it's selling off some non-core assets. It's focusing on its mines that it likes the best. And you start thinking about, man, if it's just going to focus on these top tier mines, maybe that gets a little bit more interest from institutional investors. Maybe this valuation goes up a little higher, it's not outrageous here.

3:32Tyler Crowe:Volatility has always been gold and gold miners' best friends, probably right up along there with commissions for brokers as volatility's favorite fans. Matt, we can point to plenty of things that have caused market volatility. Some of it's just animal spirits. Well, some of them at the same time will say were actually more tangible things that may be moving the market in this way. In your view, what are some of the tangible things that are actually driving this push towards gold?

4:04Jon Quast:You're absolutely right that volatile markets definitely favor gold and Bitcoin and other things that are seen as a store of value. You already mentioned the Liberation Day tariffs, but it wasn't just the Liberation Day tariffs. I feel like tariffs are a reality show this year. One day, a country is getting hit with a 50 % tariff. The next day, it's 20%. The next day, it's 40. The next day, tariffs are illegal. On and on we go. It's still in flux. There's a lot of interest rate uncertainty. Will the Fed cut? Won't they? It looks like they will now. Interest rate uncertainty can not only lead to volatility, but falling interest rates can be favorable for gold as well.

4:40Jon Quast:It just adds liquidity to the system. We've seen so-so earnings from a lot of big companies. Look how volatile NVIDIA was after its earnings. Some of their earnings were so-so, and they're really hard to predict from the MAG-7. It's been a lot of different factors, but the tariff drama, I think, has been the biggest contributor this year.

5:03Tyler Crowe:So, up 36%, I think a lot of people might be getting a little bit of FOMO. I'm like, man, should I invest in gold? Quick question, do either of you actually invest in gold? Matt, we'll start with you.

5:13Jon Quast:Not really. I have a few gold coins in my safe, but I look at it more as just something I own because I think it's fun as an investment. but I kind of wish I had had a big old gold bar at the beginning of this year.

5:25Matt Frankel:Yeah, I haven't invested in gold because I've been programmed to think that gold is something that protects my money, not something that grows my money. And for that reason, I have a lot of years of growth ahead of me, so I focus on the growth. And by extension, I haven't focused on gold stocks either, such as Newmont, but maybe I'm missing out.

5:44Tyler Crowe:All right, let's get prediction time. It's September 2025. Let's fast forward to September 2026. What is performing better, the S &P 500 or the price of gold?

5:56Matt Frankel:It's really hard for me to bet against American businesses, so I will take the S &P 500 for$1 ,000, Alex.

6:04Jon Quast:I'd also say the S &P 500, but that's like asking me what tomorrow's pick three lottery numbers are going to be. If rates fall, inflation spikes, it could easily go the other way. We could easily see another 36 % move in gold if that's the case.

6:18Tyler Crowe:Coming up, we're going to get into something that hasn't quite performed as well as gold recently, and that's Figma and its most recent earnings. But we're going to do that after the break.

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7:29Tyler Crowe:On yesterday's show, our colleagues talked about the uptick in IPO activity and Figma's stock decline since its IPO. The company reported earnings after the market closed yesterday and sent some investors, and I'm using air quotes, which obviously makes for a great audio format here, but it sent them to the exits and the stock's down about 17 % as of this taping, although I probably should check it before because it could be changing as we speak. Now, I want to timestamp bit because of the volatility of this stock. By the end of the day, this thing could end up, for all we know, considering the volatility of Figma's stock recently.

8:08Tyler Crowe:But getting into the earnings specifically, John, was there anything in the earnings report that shouted run to merit such a sharp price change before the open?

8:18Matt Frankel:Well, let me say this. Run implies fear, and fear implies a mindset that is not conducive to making good investment choices. I will say it's not run, but there are some things here that are legitimate concerns, and that's what investors are reacting to. I think the story here is decelerating growth for Figma, plain and simple. When it went public, it was highlighting 46 % revenue growth. Now, in this second quarter report that it just released, it only had 41 % growth, which is still good, but down. For the third quarter, it expects 33 % growth. Now, this deceleration can also be seen in something called the net dollar retention rate.

8:59Matt Frankel:So, this is what customers spent this quarter versus the same quarter a year ago. It was 129 % in the most recent quarter. That's good. But it's down from 132 % when it went public. So, customers are spending more, yes, but that growth in their spending is slowing down. And so, when you look at the valuation here, still trading at around 26 times this year's expected revenue. and there are concerns with AI. Is this going to eat into its business? Now you look at that decelerating growth rate and investors are worried.

9:31Jon Quast:John, I really hit the nail on the head there. First, let's be clear. A 41 % revenue growth rate is an impressive number. It's not sustainable forever as a business scales. The same can be said for 129 % net dollar retention rate. That's rare. It's really hard to keep that number going, which we saw after the last wave of IPOs in 2020, 2021 as businesses scale. But a slowdown is a slowdown, especially from a stock that roughly tripled right after its IPO. Figma was being priced for near-perfect performance. Soon after its IPO, it was trading for more than 50X sales. It still is priced for a lot of future growth.

10:10Jon Quast:Even after that decline, John already mentioned, it trades for about 26X earnings. It's barely break-even on net income. There's a lot of future expectations still priced in it. this level.

10:21Tyler Crowe:I just want to mention that was 26 times sales, not 26 times earnings, just for everybody keeping score at home. I did a little back of the napkin math before we went on the show. And I wanted to share a fun little fact about the volatility of Figma's stock. At the IPO, it issued about 36 million shares available to the public, and that's including institutional investors. There are 487 million shares outstanding in both of the share classes by the founders and all that stuff. So less than 8 % of the shares outstanding were offered to investors at the IPO. Right now, there's about 14 million shares changing hands each day and another 19 million are pledged on option contracts.

11:05Tyler Crowe:So it means more than 90 % of currently tradable shares are either traded every day or pledged to be traded at a future date. I mean, when you hear like 90 % of the stock is traded basically every day, it kind of means like no wonder this thing has been volatile. It's almost engineered to be that way. Now, this doesn't happen with every company. Not everyone IPOs the way that Figma IPOs. With that in mind, sometimes you can have weirdness in IPOs. Matt, with the added weirdness of available shares, and you have lockup periods for insider investors around IPOs, do you personally invest in IPOs?

11:46Jon Quast:Jason Moser, My short answer is sometimes. I know that John and I both have a lot we wish we could forget about the SPAC boom in 2021. But we did make some bad investments. We made some good ones as well. I did buy SoFi shares before it even announced its merger with the SPAC. The first IPO I ever bought was Block, then it was called Square, for$9 a share. That worked out pretty well. But in general, I steer clear of IPOs unless I feel really strongly about the business one way or the other.

12:15Matt Frankel:You know, Tyler, talk is cheap, but whiskey costs money. And there is a lot of talk when companies go public. And I like to see companies that actually deliver on what they talk about. That's called a track record. And that takes a few quarters to establish. And so I like to wait and see if this company is really going to do what it says it does.

12:34Tyler Crowe:Depends on what kind of whiskey you're drinking, if I don't know how much it costs. But, you know, it's funny. You guys both say that you're not the biggest fans of IPOs, but you know what, I'm going to make you pick a couple anyways. So we have a big slate of them coming next week, and we're going to talk about them after the break.

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13:39Tyler Crowe:Next week, there's about six companies by public. And I don't mean nano caps, likely pump and dump schemes from some questionable parts of the world or some pre-SPAC blank check tickers. I mean, actual legitimate businesses that are going public. So before the show, I asked John and Matt, both of you guys to look at the companies going public and pick one that was most interesting to you. I want to know what you like about it, what turns you off and what you want to know more about. So, Matt, let's start with you.

14:09Jon Quast:Yeah, the one on my radar is Gemini. Officially, the company is called Gemini Space Station. But don't let the name fool you. This is a crypto exchange. Ticker symbol is going to be GEM. This is a crypto exchange that the Winklevoss twins founded with their Facebook settlement money. They started buying Bitcoin in huge quantities when it was$10 and never looked back and are now worth about$12 billion. So, they've done pretty well out of that$65 million settlement. But what I like about it is that the crypto market is still pretty massive. There's a lot of opportunity there. They have some innovative products, like they have a credit card that earns rewards in crypto.

14:46Jon Quast:They have better capital allocation than I expected to see. Tyler will appreciate this. Normally, when you see a big net loss and a tiny adjusted loss, it means there's a lot of stock-based comp. Not the case here. Their stock-based comp is about$5 million last year for a company with a roughly$2 billion valuation. I'm fine with that. The regulatory environment is extremely crypto-friendly right now. What I don't like is that it's becoming a crowded space. Gemini, for example, is the No. 24 exchange by volume, and the business isn't yet profitable. I'd want to know more about their future growth strategies.

15:21Jon Quast:Why do they need to go public? Like I mentioned, the Winklevoss twins are worth $12 billion. Why do they need to raise money on the public markets right now? Why do they feel now's the time. So a few unanswered questions.

15:32Tyler Crowe:And just for everyone scoring at home, Gemini is going to go public with a NASDAQ ticker. It's going to be G-E-M-I. John, I'm going to leave the last word to you, which means I get to go next. And the one that popped off the page for me was a small coffee chain that's focused on small footprint stores, and it got its origins in Oregon. And it's kind of weird. I'm not talking about Dutch Bros. It's basically a carbon copy paste. It's BlackRock Coffee Roasters. Very, very similar. Apparently, the Pacific Northwest provides us with all of our grunge music and coffee companies. So, there's something there.

16:11Tyler Crowe:It's going to go public with the ticker BRCB. Here's what I like about it. At Going Public, It has strong same-store sales growth, about 10%, and a plan for, I would say, robust but not overly aggressive store count growth. Often times companies like this go public and grow very, very fast, and it tends to not go well in that regard. The founders are involved, but instead of being like CEOs, like you often see with founder-led businesses, they actually brought in Mark Davis, who was the former VP of operations at Panera Bread, and he's currently acting as the CEO. Founder-led businesses always sound great, but sometimes founders just aren't caught out to do it.

16:54Tyler Crowe:Bringing in somebody who scaled up a business like Panera, I actually think could be a good idea. I think it's a very interesting take on the way of growing a business rather than being founder-led. The thing I don't like, its corporate structure is really messy, where it's like economic interest and voting interest are carved up in weird ways between the pre-IPO investors, the founders, the publicly traded shares, and things like that. Maybe it's a nothing burger, but rarely do things that are like this end up being shareholder friendly. They tend to not be, at least for minority shareholders.

17:29Tyler Crowe:So, I'd like to see some clarity on how that may change over time. And the thing that I'm definitely going to be watching, and it's very nuts and bolts, is it's on the path to profitability. It's not quite there yet. and kind of get there and maintain strong per share or per store returns while in growth mode. Because I would really hate to see like deteriorating same source sales growth from a company that is, you know, putting, putting down new stores left and right. So John, what did you have on deck?