Strong IPO Performance

The Bloomberg US IPO index measures the performance of stocks during their first publicly traded year that IPOd with a market value of at least $50 million. Below we highlight the performance of the IPO index so far in 2009. As shown, it is up 29.47%, while the S&P 500 is up just 1.47%. Strong IPO performance is definitely much more indicative of a bull market than a bear market, and investors have been bidding up shares of recent IPOs by quite a bit.

Below the chart we provide a table of the Bloomberg IPO index members. The four that are up the most from their IPO prices are Bridgepoint Education (BPI), OpenTable (OPEN), Rosetta Stone (RST), and Duoyuan Global Water (DGW). Only 3 of the 14 index members are down from their IPO prices.

click to enlarge

Comments

[David White:]

First this is a bit of an illusion. If you didn't get in pre-IPO on Rosetta Stone, you really haven't made much money on it. It opened at about $25. It closed at $27.60 today. Considering it missed the entire down section of this year's market, you cannot really compare it to the S&P500. It has only been actively traded during the market rally months. Most IPO's were after the March lows. It's an unfair comparison for the S&P500 index.

I don't think this is a year for IPO's. Their performance will likely lag more mature stocks, if you can manage to pick good ones. If you do a comparison of the performance of the stocks recently added to the Russell 3000 from March 10, to today, I am sure these stocks would far outperform the IPO index you have mentioned. These stocks are at least as likely to do well in the next year. Plus they will all have institutional ownership due to being in the Russell 3000. They will likely do as well or better in a downturn. I have attached a link to a list of the stocks added to the Russell 3000 today.
seekingalpha.com/artic...

Jun 29 07:28 PM

[David White:]

Sorry, I meant Mar. 9, 2009, but it shouldn't make a lot of difference. Below I give the performance of 4 of the newly added Russell 3000 stocks that I have been following.

MED 3/9/09 $4.42 6/29/09 $11.01
CNU 3/9/09 $1.61 6/29/09 $2.48
HEB 3/9/09 $0.40 6/29/09 $2.57
BDSI 3/9/09 $2.88 6/29/09 $6.91

As you can see there have been some pretty hefty gains. HEB and BDSI are biotech stocks. They are both still waiting on FDA approval of a drug. In each case the FDA is past its due date for the approval. It is my understanding that the FDA is simply running behind in each of these two cases. The approval rate for stocks that reach this stage is 80%. In HEB's case, the drug would be an orphan drug. This would push the odds for approval still higher.

Jun 29 07:43 PM

[BillyTheKid:]

A better barometer for IPO performance (and from the prospective of accessible returns for retail investors) is the FTSE Renaissance IPO Index, which measures performance from first day close . . . despite not capturing the day one "pop", the index is up 21% YTD and far outpacing all major equity indices.

www.renaissancecapital...

Jul 06 12:39 PM