Birkenstock Holding Plc’s first earnings report as a public company is ripe for volatility as investors gauge whether the negative reaction to its 2023 initial public offering was overdone.

The Neustadt, Germany-based sandal maker will report results before the US stock market opens Thursday, following a rally across equity markets lifted shares back above their IPO price in the wake of an underwhelming debut.

Most analysts expect the earnings to top forecasts, as companies often give guidance to investment banks that leaves room for results to appear strong in the first few quarters. The company’s outlook for the year ahead will face scrutiny, with management discussing long-term targets with the broader investment community for the first time.

The fact that almost a third of Birkenstock’s available shares are sold short, according to data from S3 Partners, adds to the pressure for great numbers. Most of its footwear peers see less than 10% of shares shorted, the data show.

“The expectation is that you beat your first earnings by a certain amount, so if you don’t beat as strongly as some investors are expecting, then there may be some grumbling,” said Richard Truesdell Jr., a partner at law firm Davis Polk & Wardwell.

With Birkenstock shares rallying 35% from an Oct. 13 low the company may need to “offer some upside” by exceeding the preliminary performance targets it set during the IPO, according to Evercore ISI analyst Michael Binetti.

Mixed trading

Along with Arm Holdings Plc, Instacart and Klaviyo Inc., Birkenstock was among a crop of blockbuster IPOs that delivered mixed trading performances at first. Its shares are up 6.5% from an October debut that saw them trade below the offer price for the first seven weeks.

The options market shows investors are preparing for a big move this week, with an 8.8% share move on the day after earnings currently priced in.

“The stock could squeeze if Birkenstock beats expectations due to high short interest,” said Jay Sole, an analyst at UBS Securities. If the news surprises to the downside, shares could fall given Birkenstock trades at a price-to-earnings ratio higher than peers, he wrote.

The trends are looking good, with a solid spring/summer 2024 sell-in season expected, Evercore’s Binetti wrote. Birkenstock should be able to make Wall Street more comfortable with modeling stronger revenue growth this year, he said, given solid results at the end of 2023 as well as prominent marketing and new manufacturing capacity coming online.

The ability to beat expectations and promote guidance that’s stronger than Wall Street has penciled in would go a long way for the company and the backlog of first-time share sale candidates. Arm reported underwhelming sales in November, which along with softer trends from Klaviyo and Instacart have called recent IPO valuations into question.

The IPO market remains fragile after suffering a second slow year in 2023. Homebuilder Smith Douglas Homes Corp. rose 14% in its trading debut last week, delivering a much needed win.