Tuesday, November 14, 2017

IPOs Present Opportunity to Stock Traders



IPOs have been slowly increasing since the lowest number in 2008 of only 35 newly introduced company stock during the Great Recession.  2014 saw the largest capital raised with 291 completed IPOs raising a record 96 billion, but only 112 in 2016 with just $21b raised.  Although the IPO market has been slow the last couple of years, the first half of 2017 is seeing a slight increase with 91 completed deals. The upswing in 2017 of the number of IPOs creates opportunities for traders, although it can still be tricky to earn decent returns in the current environment.  IPOs can be risky business for an individual investor as it can be difficult to predict how new stock will perform when introduced and trading begins.   Most IPOs are experiencing a transition period which makes their future value a bit uncertain and there is no historical data to compare to.  
Even though the number has been increasing, the return are not necessarily following suit.  2017 has seen returns on IPOs averaging only 10.6%, which is the 2nd worst performance for a 6-month period since 1995.  To explain this decrease in performance we must evaluate the change in the structure of today’s typical IPO, which has had a profound effect on returns.    
Today’s IPO is Larger and More Stable
The profile of today’s IPOs has changed dramatically in the last few years, as companies wait until they are much larger to go public than they would have in the past.  The median deal size has increased from $82 million in Q1 2016 to $190 million in Q2 2017.   IPOs are raising more money than they ever have in the past, and are more stable when deciding to go public.  
When these companies choose to go public they are stable with defined revenue streams and completely functioning management teams.   The stability of the IPOs today allows them to command a higher market cap than companies without that proven track record.   There is less volatility and less chance for bigger returns for traders with more visibility on valuation.
It takes traders with experience and willingness to do the research to earn the returns on IPOs that we saw in the past.  Great Point Capital is a team of experienced traders with in-depth knowledge of all market opportunities.  

Great Point Capital is a member of FINRA, serving the trading community since 2001.   Our mission is to be the leader in the equity day trading community by giving the best traders the tools and support to make the most of their trading careers.  Contact Great Point Capital, LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results.

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