Wall Street debutantes have had a good lesson in Stock Markets 101 as many have been on a rough ride since their initial public offerings in the face of market volatility.
The market turbulence of the past week has seen more than half the class of 2015 initial public offerings trading below their debut prices, according to Renaissance Capital. The same pattern emerges from Dealogic data which reveals that 55 out of 133 U.S. issues were trading lower than their IPO prices at market close on Friday.
Brendan Connaughton, chief investment officer at ClearPath Capital Partners, said on Monday that, “perception and reality had become very, very dislocated. This market action is bringing it back into association.”
Some of the recent IPOs which have become big losers are:-
Etsy Inc. (ETSY, -3.94%) which had its debut on 16 April when its shares opened at $30.98 against an IPO of $16, closing at $30 after its first day of trading. The share has lost value as a result of investor concerns about high company expenses and continued unprofitability. The share closed at $12.93 on Monday.
Amplify Snack Brands (BETR, -7.74%) is another 2015 debutante that has not fared well with its stock, never having gone above the 25 August IPO of $17.00 after it closed at $16.45 at the end of its first day of trading. Amplify Snack Brands shares were trading at $12.51 at the close of trade on Monday.
Another of the class of 2015 IPOs with a poor performance since its debut is Planet Fitness Inc. (PLNT, -7.33%) which started poorly before fighting its way to trade at $18.68 on 10 August after an IPO of $16.00. Market close on Monday saw the share trading at $15.05.
Meanwhile, Fogo de Chao Inc. (FOGO, -5.31%) listed on 19 June with an IPO price of $20 and opened at $26.00, closing at $25.75 after its first day on the market. The share has been losing ground steadily since that time to close below the IPO price on Monday at $17.84.
An article in Money Morning titled Best and Worst IPOs of 2015 ascribes much of the blame for the poor performance of so many IPOs to the fact they are unprofitable and are often burdened with high debt as is the case with Planet Fitness. The article quotes Fortune as having reported, “The IPO used to be a moment of glory, now it's a sign of desperation.”
ClearPath Capital’s Brendon McNaughton says that the market has changed since the shares were offered for the first time, while investor’s views have changed over the last one and a half months.
He added, “The environment they came out in, the mindset at that time is different than it is now. This is a big slap of cold water in our face.”
IPO analysis firm, Renaissance Capital said in a blog post last Friday that, “While we believe there is a large backlog of companies still targeting an IPO by year end, this poor performance, coupled with the broader selloff, may cause firms to be cautious when the IPO window reopens after Labor Day.”
Technology company RainDance is the latest of 4 companies that have cancelled plans for an IPO, although this doesn't mean that other companies with planned IPOs won't be going ahead.