Last week, I talked about one of the best initial public offerings (IPO) this century, Beyond Meat (Nasdaq: BYND), and the stock soared. Then, the much-anticipated IPO of Uber Technologies (NYSE: UBER) happened, and the stock has been a disaster.
Does that mean we’re at a top in the market?
If past is prologue, we may be close. At the very least, we need a cooling-off period after one of the hottest starts to a trading year in decades.
I’ll repeat what I wrote last week: I wouldn’t invest counterfeit money in an IPO right now. The odds don’t favor it.
As the chart below shows, the number of billion-dollar IPOs over a rolling 36-month period rivals only the dot-com boom.
What a difference a few years makes. Back then, not a single IPO priced above its indicated range.
Now, speculators are climbing all over themselves to get into the latest deal… the latest money-losing deal. These companies are bleeding billions of dollars.
What’s more, there’s no end in sight to the losses these companies are racking up. That hasn’t stopped the enthusiasm, though. The number of IPOs jumping 30% or more in a single day is just like those good old days back as the Internet Bubble was peaking.
We all know how this phase in the market ends… badly.
Uber’s early trading could be a sign of things to come for overhyped and overpriced IPOs. The stock was priced at $45. It closed the first day at $41.57. Thud.
It bottomed at $36.08 but has rallied a bit. I wouldn’t be surprised if we don’t see prices well below $36 shortly. This is a company with slowing sales growth and massive losses that are expected to continue.
What’s to like about that?
There is something to be said for identifying “up-and-coming” or “under-the-radar” stocks. But there’s a smart way to do it. Jumping on the Wall Street hype machine and chasing billion-dollar “unicorn” IPOs is not smart.
Indeed, recent volatility has exposed some great opportunities in quality, low-priced stocks that represent solid value.
Not a lot of hype here. But all it takes is one or two small-cap all-stars to rocket higher to make your returns soar…