IPOs Increase for 2017 Slow and Steady

The IPO market appears to be improving this year, although factors still exist that will keep it from growing too rapidly.  Company managers and owners must be ready to give up some control to shareholders when going public.  This can deter some companies from transitioning to a publicly traded company until they require the capital for growth.

For that choose to prolong the jump to an IPO, private equity markets and venture capital have matured to fill the gap. Companies choosing to stay private longer can finance debt with relatively low interest rates providing an attractive option for growth.   The private equity business sector also received additional boosts with the Reg A and crowdfunding rules that went into effect over the past couple years, which made it easier to raise capital without taking the step of a public IPO.  The regulations of the Sarbanes-Oxley Act of 2002 is another factor that makes staying private even more attractive as public companies must invest time and accounting expertise to comply.  

Opportunities Exist with Special Purpose Acquisition Company (SPAC)

Another opportunity exists for experienced traders willing to do research, which is a Special Purpose Acquisition Company, (SPAC).  This is an interesting hybrid of public and private funding that is growing in the markets today.  An SPAC IPO is essentially a blank check for the managers to go out and acquire private companies.  

An SPAC is usually formed by people with in-depth knowledge typically in a specific industry, who are confident that they can identify profitable acquisition opportunities.  100% of the money raised through the IPO is deposited into a trust account to fund the SPAC, giving reassurances to investors.  

Great Point Capital offers professional services for active including Proprietary Trading, Index Options and Quantitative Trading services.   Our team has experience trading in stocks, futures, IPOs and SPAC’s.  We are one of the few firms with the ability to offer access to Takion trading software, enhancing your trading performance.

Great Point Capital has been serving the trading community since 2001, with 100+ prop traders actively trading the firm’s capital.  Our mission is to lead the equity day trading community and give traders the support and tools necessary to make the most of their trading careers.  Contact us today in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results

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.

IPOs Offer Opportunities to Stock Traders

Trading stocks versus futures has many advantages, with newly created IPOs presenting some of the best trading opportunities.  The sheer number of products available is a big advantage of trading stocks as there are thousands of individual stocks to choose from, compared to only a handful of indexes on futures markets.  Many individual stocks have an actionable trading range due to industry or company news, even on days when the overall market is quiet.

There are fewer stocks in the market since the dot-com busts and M&A boom that occurred between 1995 and 2003.  During that time period,  the number of listed stocks decreased by close to 50%.   The market has stabilized since 2003 with about 4100 – 4400 listed stocks on the market.  Check out our post “How Long Can the Market Sustain its Low Volatility?” for more information on this and other factors that affect the current low volatility of the market.  

The most notable change in listed companies has been the average market cap, which has doubled since 2008.  According to a study out of Harvard from earlier in 2017, the average market cap of a US listed company is $7.3 billion, with a median of $832 million.  About 140 companies now make up 50% of the total market capitalization.  These larger and more stable companies are generally not the domain of traders.  

IPOs are Increasing in 2017

Following a similar trend as stocks, IPOs in the US are down from their peak in the 90’s of 677 in 1996 when large numbers of companies went public only to be bought out later or succumb to the bust.  During the Great Recession in 2008, IPOs hit an all-time low of just 35, but rebounded to 291 in 2014 with record capital raised of $96 billion.  

The last couple of years, however, IPOs have been down with only 112 completed deals in 2016 raising only $21b, although 2017 began to show improvement with 91 completed IPOs in the first half of the year.  For a market that has been in rally mode since early 2016, however, even this upswing is not very robust.  This leaves stock traders with fewer choices on the exchanges of NYSE and Nasdaq.

Newly created stocks from Initial Public Offerings (IPOs) still present some of the best trading opportunities, especially for traders willing to do some homework.  

Great Point Capital is a member of FINRA, serving the trading community since 2001.  We offer professional services to traders, including access to Takion trading software.  Contact us in our Chicago or Austin office to learn more about how we can successfully trade together with maximum trading performance.