The market for initial public offerings (IPOs) could be heading toward the biggest boom we’ve ever seen.
A growing number of companies are waiting their turn to go public amid market conditions that are the best they’ve seen in years.
An IPO is when a private company offers shares to the general public for the first time and lists on a stock exchange. Key ingredients are necessary for an IPO boom to take off.
Risk appetite needs to be strong among investors. That’s because many IPOs are very speculative. Most companies going public are in a high-growth phase but are still operating with negative earnings on the income statement.
The regulatory landscape can play a big role as well in supporting or deterring private companies from going public.
And right now, a perfect mix of catalysts is unleashing a record-setting number of IPOs…
Investor enthusiasm for IPOs is running high. That was on full display with the SpaceX IPO last month. SpaceX (SPCX) debuted at a $1.7 trillion valuation and raised over $85 billion – both numbers all-time records.
And just last week, a little-known company leveraged to the AI trade tapped into the easy money environment. SK Hynix is a memory chip maker that competes with Samsung and Micron Technologies (MU). The South Korean company has traded on its home exchange for some time. But with conditions ripe, SK Hynix decided to launch a listing on Nasdaq.
In doing so, SK Hynix raised over $26 billion, the second-largest IPO in U.S. history behind SpaceX last month. That amount grabs the top spot for a foreign company listing on a U.S. exchange.
Investor demand for shares was so strong that the SK Hynix offering was oversubscribed by seven times. That shows investor appetite for IPOs is running at a fever pitch.
At the same time, the Securities and Exchange Commission (SEC) recently launched a campaign it calls “Make IPOs Great Again.” The slogan points to the SEC’s desire to see more companies go public. It is removing red tape and shrinking costs to do so.
A combination of strong investor demand and a favorable regulatory backdrop seems primed to open the IPO floodgates… and lure investors at the exact wrong time.
The market for IPOs has been at a standstill for years now. But as recent record-setting IPOs show, that’s all changing.
There’s a massive backlog of “unicorns” waiting to go public. A unicorn is a private company with a $1 billion valuation or more. By one estimate, there are over 800 unicorns that could launch their own IPOs. We could see a flood of private companies rushing to the public markets.
While investors dream of striking it rich with IPOs, the reality is that buying post-IPO shares can be a difficult way to profit. By the time a company goes public, the easy money has been made.
In fact, buying IPO shares immediately following a listing could saddle you with losses. One study looked at 30 recent major IPOs. The performance of those IPOs a year later showed only 43% delivering a positive return.
But the maximum drawdown during the first year of being public really stands out. Each IPO saw an average maximum drawdown of 55% during the first year of trading.
That’s why I trade IPOs differently. I’ve discovered an opportunity on IPO days that’s allowed my subscribers to collect a payout 82% of the time historically.
I call them IPO profit windows, and the number of opportunities is set to explode with the coming IPO boom. And here’s the best thing: I don’t even touch the stock.
Join me on Wednesday, July 15, at 8 p.m. ET to see my 5-minute strategy and hear why it may be one of the only ways everyday investors can profit on IPO day… including the ticker behind my strategy. RSVP with one click right here.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
