IPOs Deliver Best First-Day Pop Since 2000
Companies going public like luggage maker Tumi see soaring share price.
April 22, 2012 — -- More companies are finding that when they go public, it isn't a question of if their shares will jump, but how high.
Two anticipated initial public offerings saw their shares jump Thursday in a sign the IPO market is not only healthy but gaining steam. Luggage maker Tumi jumped 47%, and data-analysis firm Splunk turned in the best IPO performance of the year with its 109% opening-day surge.
They added to what's been the biggest year for first-day pops in IPOs since 2000. So far, IPOs on average have gained 19% on their first days of trading, says Renaissance Capital. That's well above the average 10% gain of IPOs in 2011 and 2010. IPOs haven't seen average first-day gains this high since 2000, when the average first-day gain was 56%.
"We have seen some pretty big first-day pops," says Nick Einhorn of Renaissance Capital. IPOs are priced "to trade well."
Investors shouldn't assume, though, that IPOs are regaining their get-rich-quickly status — that investors can flip shares and expect to double their money. The recent uptick in first-day gains is being driven by:
•Specific attributes. Splunk provides services to help companies sift through mountains of data for clues to be more profitable. The software industry, thanks to its growth, is appealing to investors, says Francis Gaskins of IPOdesktop.com, and five of the best-performing IPOs this year were tech stocks. Meanwhile, investors are drawing parallels between Tumi and apparel designer Michael Kors, which has more than doubled from its IPO last year.
•Price cutting. Investors are also jumping into IPOs due to aggressive price cutting, Einhorn says. Solar company Enphase Energy cut its IPO price from upwards of $12 a share to $6 a share. The stock then rose 22.3% the first day.
•Solid interest. Investors craving growth companies are looking to IPOs, says Robert Maltbie of Singular Research. There's ample supply, as there have been 50 IPOs this year, up 6% from 2011. Facebook's massive IPO is looming, too.
But the excitement is nowhere near 2000's level, and so the recent solid first-day gains are "aberrations," says Jay Ritter of the University of Florida.
Yet even with the strong interest in recent IPOs that's causing the first-day pops, the supply of new stock could overwhelm the market, in the short term. "It's correction time," Maltbie says. "The flood of IPOs hitting the market is overwhelming the money coming into the market."
