Why It May Be Best to Wait on IPOs

Waiting on IPOs

Waiting on IPOs

Everyone likes to be the first to discover the next hit band or hot fad. But something I get a kick out is discovering that next big stock.

So, I like to watch the soon-to-launch IPOs (Initial Public Offerings) available at the Nasdaq website. It's fun to see who is going public and if they have the potential to be a hot stock.

While I don't typically purchase individual stocks – I will from time to time, if one strikes my fancy. One that I had fun purchasing many years ago, was Krispy Kreme. I purchased it after living out in California for a season and seeing how popular the doughnuts were there. When I moved back to the Midwest and Krispy Kreme decided to go public, I jumped on their stock. It was more of a hunch than any deep dive into their financials.

And, boy, it took off. It was shortly after the dot.com bubble burst and folks began eating some of their sorrows away in donuts (among other things).

I think a lot of buying stocks is about being a good observer of human behavior.

Waiting on IPOs to cool off?

Recently UBER has been the news with its IPO. Priced at $45/share last Friday – they closed their first day of trading $41. Not a great first day, but you never know if folks were just a bit skeptical of it with unhappy contractors and several lawsuits in the works.

According to Gizmodo, UBER is one of the worst-performing IPOs in history. Yikes.

The LA Times recently did a fun look at IPOs after their first 60 days and added an interactive game you can play to see when the best time to buy that stock was. The site profiles 7 “next big thing” stocks and it is interesting to see the low point for that stock.

And for most, it wasn't the first day (or even first several days) after listing.

Here's a look at Facebook – who struggled for quite a while to get their footing:

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Facebook after 60 days of IPO

Now trading at $188, any purchase during that first 60 days would have done you well today – but it's interesting here to note how far it fell from its initial price of $40+ to a low of $20.

How about UBER‘s competitor, Lyft? How did they fare during their first days after launch (while not quite 60 days, since it went public in April)?

lyft ipo 60 days after
Lyft's 60 days after IPO

With almost a $90 evaluation, their low point was at $56.11. Just Friday (5/10), it was trading at $51. And, it's possible to go lower after UBER's dismal showing.

So, all this excitement around IPOs may just be media hype / or the company's marketing or PR efforts.

ipo

Financials are important

After my coworker alerted me to the Impossible Burger at White Castles (it's tasty for not being meat), I went out and purchased Beyond Meat's brats from Whole Foods. Boy, was I surprised at how close these “fake” meat products are getting to the real thing. They even look like meat!

Beyond Meat is one of several plant-based meat substitute products out there. It seems to fill a niche for people looking for an alternative to meat and could be less of an impact on the environment.

Their stock listed at about $65 earlier this month and is still only about a dollar more since. After showing the promising stock find to my accountant friend, Dave, he brought me down to earth showing me how much money they're losing.

It's amazing to me that a lot of these IPOs aren't making money. Take Lyft for example. They don't anticipate profitability until 2024.

I guess I always think of Amazon. For years they never showed a profit and yet remained a darling to investors. I guess if you stuck with 'em during those lean years – you'd be doing alright today.

Moral of the story

Though its fun to spot the next big stock on the horizon – I think it's just important to get started in investing. Whether that be through your employer, via a 401k or the like – there is no time like the present.

Do you watch IPOs? What's one stock pick you are proud of?

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