This year has been a busy year in the Initial Public Offerings (IPO) market. Many companies have taken advantage of good stock market conditions and investors’ growing risk appetite to go public this year.
Since the end of last year, I have noticed a growing interest from people to participate in some IPOs. These people were especially motivated by companies with high brand recognition that went public. For example, like Airbnb (December 2020), Affirm (January 2021), Bumble (February 2021), Roblox (March 2021), Coinbase (April 2021), Robinhood (July 2021), Warby Parker (October 2021). Therefore, it is worth wondering what the performance of IPOs has been so far in 2021.
[Related article “Robinhood IPO: Don’t buy the hype” 07/2021].
To better understand the panorama, I analyzed the IPOs that have been carried out on the NASDAQ between January and November of this year.
Here are some key figures.
How many of the IPOs have gone up in price and how many have gone down?
Of the 809 shares analyzed, as of December 6, the share price of 444 of them (55%) is higher than the price of their share in their IPO. In the case of 365 of them (45%), their share price is lower (363) or equal (2) than their IPO.
Was it worth it to participate in these IPOs?
If we use the criterion that an investment in individual stocks is only worth it if its return is higher than the return on the market, then investing in IPOs in 2021 has definitely not been worth it in the vast majority of cases.
Of the 809 stocks analyzed, 717 of them (89%) have had a lower return than the S&P 500 so far this year. Only 92 of the shares that went on IPO this year on the NASDAQ (11%) have had a higher return than the S&P 500 whose return from January 1 to December 6, 2021, has been 24.08%.
In which sectors are the companies with the best and worst performance?
In conducting this analysis, I was curious if there were any sectors or sectors that performed particularly well or poorly. The answer is no clear conclusion.
In all the sectors that I evaluated, I found winners and losers. For example, the sector with the most winners in the top 20 list is from the consumer cyclical sector with a total of six. These include companies like Volcon, Inc. (VLCN) whose stock is up 165% since its IPO, or Dutch Bros Inc. (BROS) whose stock is up 110% since its IPO. But this sector also had some of the biggest losers.
On the other hand, the sector with the most losers in the top 20 list is from the health care sector with a total of eight. These include companies like Bright Health Group Inc. (BHG) or VectivBio Holding AG (VECT) whose shares have plummeted 82% since their respective IPOs. However, this sector also had some of the biggest winners.
What have been the best and worst-performing stocks since their IPO in 2021?
When aggregate figures are studied, the history of what happened with the individual parts is lost a bit, so I zoomed in on the data to present you the 10 best and worst IPOs of 2021 by return as of the time of writing this article.
Looking at this data, perhaps we can understand why people are interested in investing in IPOs. The motivation to find the diamond among the mountain of coal is powerful. However, my suggestion is that in the future you refine your strategy to search for that diamond and do not risk what you cannot lose in the search. Because chances are you will only find coals.
This article was written for educational purposes and does not provide investment recommendations specific to individual investors. As such, the financial instrument(s) discussed may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instrument(s) listed in this newsletter should not be taken as an indication or guarantee of future results. The price, value of, and income from, any of the financial instruments showed in this article can rise as well as fall and may be affected by changes in economic, financial, and political factors. If a financial instrument is denominated in a currency other than the investor’s home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this post.