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IPO market wants retail back

Investors locked in gains in December while institutions jumped back in, marking the beginning of a promising year for the US stock market. Optimism is on the rise as interest rates decrease, and a soft landing scenario appears increasingly likely. However, retail investors, including myself, are still nursing bitter memories of the 2022 bear market and the persistent volatility that plagued 2023, despite the strong market climb.

As we reflect on our community of retail investors, many of us are cautiously looking for more market catalysts to bolster our confidence before re-entering the market. We're diligently shopping for investment opportunities, hoping to find attractive deals that align with our convictions.

In a recent Bloomberg report, Smith Douglas Homes Corp.'s initial public offering (IPO) marked a positive start to the year for the US market. The company raised an impressive $162 million and experienced a 17% surge in its debut on January 11. This successful IPO defied concerns that it might follow the recent underperformance of new listings. However, a survey conducted by private trading data firm Linqto reveals that while retail investors like us are showing enthusiasm, the stumbling blocks faced by post-IPO companies in 2023 remain a concern that the class of 2024 must overcome to ensure a sustainable revival.

Evan Riley, the Head of Equity Capital Markets Americas at BNP Paribas SA, commented on the significance of near-term potential IPOs, especially the sizable ones. Each successful IPO matters, as it can pave the way for more deals in the future, benefiting both banks and the buy-side.

The new year has brought renewed hope, with several potential issuers preparing to enter the public markets. Approximately a dozen companies, including BrightSpring Health Services Inc. (backed by KKR & Co.), CG Oncology Inc. (a clinical-stage biopharmaceutical company), and Amer Sports Inc. (supported by China's Anta Sports Products Ltd.), have filed for listings.

Ross Carmel, a partner at law firm Sichenzia Ross Ference Carmel, mentioned that their internal pipeline is booming, with banks signing up deals and people seeking assistance for issuer-side and underwriting IPOs scheduled for the end of the second quarter or the beginning of the third quarter.

As for retail interest, the question is whether a strong cohort of IPOs will attract retail investors like us. According to a Linqto survey, three-quarters of 2,500 retail investors expressed interest in investing in IPOs, and over half of them anticipate a "significant recovery" in the IPO market in 2024. This shift in sentiment is notable given the lackluster returns of recent IPOs, which averaged only 14% compared to the S&P 500 index's 24% rise and the Nasdaq 100's impressive 54% gain in 2023.

Joe Endoso, president of Linqto, acknowledged the anticipation and excitement surrounding future IPOs, despite past underwhelming returns. He pointed out that the underperformance of previous IPOs indicated that they might have been overpriced.

In summary, while optimism is growing, retail investors like me are cautious about re-entering the IPO market in 2024. We are seeking strong fundamentals and carefully evaluating investment opportunities. The real test of the IPO market's recovery, as per BNP's Evan Riley, will depend on the sustained flow of new listings in the technology sector, and as a tech enthusiast, I share his sentiment.

Source: Bloomberg and Yahoo Finance

By Ken Mooso


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