What we are currently witnessing in the IPO market is truly fascinating. Some would even call it a buying frenzy. There’s no shortage of new companies for investors to choose from, thanks to over 447 IPOs on the U.S. stock market this year. That’s an increase of over 96.9% from 2019 and the most since 1999 and 2000, which older investors will recall was right before the dotcom bubble burst.
There are several reasons why the IPO market has likely been so hot. First, you have the pandemic causing massive changes to the way we live our lives that is driving interest in “new economy” companies. Also, a low-interest rate environment is typically thought of as favorable for high growth companies. Finally, the market’s overall strong performance this year has led to a massive influx of speculative money.
Investors should try to avoid getting caught in overinflated prices on the latest IPOs, even if they are great companies. After some of the initial hype dies down and we have more information about the actual earnings of these companies, investors can then make a more educated decision about whether to or not they want to buy.
The bottom line is that a little bit of patience can pay off when it comes to investing in IPOs, which is why we’ve put together a list of 3 recent IPOs for investors to monitor.
Airbnb (NASDAQ:ABNB)
Airbnb’s IPO was one of the most anticipated market debuts in recent memory, but many investors were left scratching their heads after the stock opened at nearly double the IPO price of $68. Either the underwriters did a poor job of pricing this IPO, or they deliberately underpriced it to artificially boost the demand. While it’s easy to recognize the potential in a company that is completely changing the way that people travel, the fact that the company’s valuation has increased so much during its first trading day should raise some red flags. However, that doesn’t mean that investors should write-off Airbnb entirely.
Airbnb is disrupting the travel industry by providing a convenient online marketplace for finding lodging. Before Airbnb, travelers were pretty much limited to staying at hotels during their time spent away from home. Now, travelers can choose from a huge selection of apartments, condos, and even private villas listed on Airbnb’s user-friendly online platform. The travel industry has been decimated this year thanks to the pandemic, and Airbnb reported a year-over-year revenue decline of 72% in Q2. With that said, there are early signs of a recovery as the company reported $219 million in profits during Q3 2020. Investors should probably wait until we get more confirmation that travel volume is rebounding before adding shares.
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