Not everything that glitters is gold.
While initial public offering volume has hit a record high this year, two-thirds of companies that went public during 2021 are now trading below their IPO prices, according to The Wall Street Journal.
On average, 2021 IPOs traded 9% below their IPO prices late this month, according to Dealogic.
IPO Weakness May Continue
Experts attribute the weakness to indications that central banks will lift interest rates next year and to the heavy supply of IPOs, The Journal reports.
Anticipation of rising rates pushed technology stocks down and made the potential earnings streams of newly-public companies seem less attractive.
As for supply, EY reported 416 U.S. IPOs raising $155.7 billion as of Dec. 16.
“While it’s a boon for the bankers to have a record number of IPOs, it’s an environment to tread very cautiously as an investor,” Denny Fish, portfolio manager at Janus Henderson Investors, told The Journal.
Look for IPO Bargains
Real Money’s Jonathan Heller recently discussed his search for bargains amid stocks that have stumbled since their IPOs.
“Typically, IPOs are surrounded by a lot of buzz and excitement, and that is reflected by the market’s early reaction, which can push shares higher than they deserve,” he wrote.
“Sometimes this madness continues until there’s a disappointment of some kind; perhaps the growth story was not as solid as investors believed, and investors move on.”
Heller cited grill maker Weber (WEBR) – Get Weber, Inc. Class A Report as an example. It went public in August at $14, and earlier this month he took advantage of its fall to establish a position around $12. Weber recently traded at $12.45, down 0.4%.
