IPOs' Comeback May Be Sooner Than Expected

According to Bernstein Research, the IPO market for the next year (or two) is going to be about as successful as the Detroit Lions - in other words, not great.

But the IPO market might start picking up sooner than they think. With the amount of money sloshing around in Treasuries driving returns to near 0%, it stands to reason that investors will start looking for better things to do with their money.

In addition, private equity shops aren’t going to want to be “short stacked” for too long. Like a poker game, if you aren’t adding chips, you’re losing them.

The interesting thing is that Grand Canyon Education (LOPE), which is the most recent IPO, has increased almost 50% since in November.

It’s a standout. Most IPO offerings in the last six months have been pulled, the remaining ones have lost sizeable amounts. Others, like Penthouse’ parent company, are finding that they are fighting lack of interest in addition to the chilly environment.

The take-away is the recent IPOs that debuted in July and August, like Rackspace Hosting (RAX), GT Solar (SOLR) and Energy Recovery (ERII), have been brutalized by the market’s performance - perhaps unfairly.

Underwriters will probably err on the side of caution in pricing new IPOs - under-pricing them, and that could benefit early investors.