IPOs + SPACs of Interest

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>>> IPO Stocks Take Flight In 2018 — Here's How To Catch One


Dozens of new IPO stocks this year are up 30% or more from their initial pricing. Here's how investors can capture some of the best ones.


DAVID SAITO-CHUNG

8/03/2018


https://www.investors.com/news/ipo-stocks-2018/


Stock market turbulence in 2018 hasn't stopped top IPO stocks from flying to new highs.

The major indexes are up this year, after they fluttered to new heights in 2017. But stocks got batted around starting in February, with the benchmark S&P 500 index swooning nearly 12% in two weeks and flapping up and down since then. Yet in this environment the IPO market has transformed as a new population of lively companies have emerged on the public market.

Renaissance Capital, an IPO-focused investment firm, reports that 115 companies debuted on U.S. exchanges in 2018 through July, up nearly 39% from last year. And the story shared by companies that priced their initial public offerings this year reveals a vibrant tone.

Through Friday morning trading, 37 stocks have lifted 30% or more from their IPO prices. Twenty-five are up at least 50%. And nine have run up 100% or more. (See a list of all 37 top IPO stocks of 2018 at the bottom of this article.)

For the investor looking to capture pretty gains in today's market, recent IPO stocks can be worth the pursuit.

IPO Stocks 2018: Where To Look

When you seek the best growth stocks, it may help to imagine the stock market as a thick, lush forest.

In that forest, you have scads of big growth stocks that have flourished for years, even decades. These leadership-quality names keep innovating their industries or creating new markets, building incredible wealth for long-term holders along the way.

Yet you may also catch a sight of beautiful butterflies. These mystical creatures are like new IPOs on Wall Street. Some die fast, or disappear into stock market mediocrity. But others transform into stunning creators of big stock market profits.

The secret is to know how to tell the difference. And investing in the best IPO stocks carries special nuances. (See How To Buy IPO Stocks and IPO Stocks: Technical Analysis sections below.)

Today's top new moneymakers in the U.S. equities markets, like some butterflies, have exotic names. They've migrated to Wall Street from all parts of the globe. In 2018, they include Huya (HUYA) of Guangzhou, China; Goosehead Insurance (GSHD) of Westlake, Texas; nLight (LASR) of Vancouver, British Columbia; Zscaler (ZS) of San Jose, Calif.; and Cactus (WHD) of Houston.

Huya IPO And nLight IPO: Two Leaders

Huya stock is up more than 170% since the Chinese esports pioneer's May 10 pricing of its initial public offering at $12 a share. The stout gain comes even after a steep correction that began on June 15. High-power fiber laser maker nLight has flown as much as 173% above its IPO pricing on April 25 at $16 a share.

New winners like these typically lead fast-growing new markets. Or they are benefiting from the positive effects of dramatic change in their underlying industries.

R. Buckminster Fuller, the American engineer and architect, was quoted as saying, "There is nothing in a caterpillar that tells you it's going to be a butterfly." That's not necessarily true for new IPO stocks.

Outstanding financial performance, a great management team and amazing new products and services help form the launchpad for strong moves among new stocks, just as with older stocks.

Take Cactus. It designs, makes, sells and rents wellheads and pressure control equipment to oil and gas firms. Four years ago, crude oil prices plunged more than 75%. Yet oil ended its bear market in the winter of 2016 and has forged a bullish climb. Houston-based Cactus had a gusher of a year in 2017. Revenue soared 120% to $341 million, a record. The bottom line went from a net loss of 11 cents a share in 2016 to earnings of 89 cents a share.

On Wednesday, Cactus posted another round of excellent quarterly results (earnings up 109% to 46 cents a share, revenue up 69% to $138.5 million, a quarterly best). The Street sees Cactus profits pumping 116% higher this year to $1.92 a share, then another 22% in 2019. Cactus debuted on the NYSE on Feb. 8 and has risen as much as 97% from its $19 a share IPO price. The stock, trading near 33, is building a new base.

IPO Stocks, Social Media And 'Froth'

Michael Bozzello, director of community at the StockTwits social network, says engagement related to IPOs has increased sharply. From May 1 to July 24, the mention of "IPO" appeared 11,565 times across its ticker streams, up 30% from a year earlier. Year to date, StockTwits has seen 25,342 total IPO mentions, up 18% vs. 2017.

"The top three mentions of 'IPO' in order in 2018 were iQiyi (IQ), Spotify (SPOT) and Dropbox (DBX)," Bozzello told IBD. "So while Spotify and Dropbox stole mainstream U.S. media attention for IPOs, $IQ, dubbed the 'Netflix of China,' received double the amount of mentions (1,034) on StockTwits."

Some market observers express concern about Wall Street bankers' enthusiasm to feed new IPOs of companies that are losing money.

Jason Pride, CIO for private client assets at the $40 billion money manager Glenmede in Philadelphia, cited University of Miami research that shows the ratio of new IPO stocks with annual net losses hit 75% in 2017. That's nearly double the historical average of 30%-40%. It mirrors the days of the dot-com bubble that ended in March 2000.

It's not just IPOs that show some "froth," Pride notes, but the greater stock market as well from the POV of small- and midcaps. His team studied the Russell 3000 to find so-called "zombie companies," which for three years in a row do not have enough EBITDA to cover interest rate expenses or to break-even. The ratio stands at 9%, vs. the historical average of 6%.

"We haven't seen that level in the data yet, and our data sets go back to the 1990s," Pride told IBD in an interview. "Investors may be over-rewarding this space of the market. It's occurring in the debt markets and in private equity."

How To Buy IPO Stocks

Many investors long to buy shares at the IPO price set by investment bankers before a stock starts trading on the Nasdaq or New York Stock Exchange. But most individual investors don't have that opportunity. The shares generally are sold to institutional investors like mutual funds and to select individuals who meet criteria set by their broker.

But buying stock before it has established a market trading price would be risky anyhow. Plenty of stocks fall sharply in their NYSE or Nasdaq debut and continue tumbling.

So investing in IPO stocks really means investing in recent IPOs, or even broadening out to vibrant companies that have come public in the last few years.

Veteran investors know that not every new company can make an extraordinary gain the way Google owner Alphabet (GOOGL) did in its first 12 months of action in public markets.

The No. 1 search engine priced its offering in the summer of 2004 at $85, broke out of an IPO-style base at 113.58, and sprinted 179% higher in less than a year.

IPO Stocks: Technical Analysis

It's wise to refrain from buying a new IPO on the day of its debut, or even in the first several days of trade. Instead, let such a stock find a price range over several weeks or months. Avoid those companies that dive below their IPO price; it means institutional investors who got shares in ahead of the IPO are dumping shares with enthusiasm and locking in profits.

Buying such an IPO as it falls in price is akin to catching a falling knife.

As with any stock, using a chart to identify the base, or pattern of price consolidation, will help you make better buy and sell decisions. The basic framework of a good IPO base is actually simple. The decline from peak to low usually doesn't top 20%, but the most volatile markets have produced declines of up to 50%. The length is often less than five weeks and can be as short as seven days. (Learn more about how to recognize a good IPO base.)

Look for companies that show a history of big earnings growth and fast-rising sales. Some will have only recently turned a profit on a quarterly basis. The IBD EPS Rating — which rates the stock's earnings growth on a 1-99 scale against all other stocks — may be low, but such companies shouldn't be ignored. The stock may hit a track of accelerating growth, a key element among the best stocks during bull markets.

Recent IPOs

Eleven IPOs hit the markets the week of July 23, according to Renaissance Capital. Over the past week through Friday, at least three more firms priced their IPOs.

On Wednesday, speaker maker Sonos (SONO) priced its IPO below its target range at $15 a share. But on Thursday, shares sprung sharply above 15 on its debut and finished at 19.91. On Friday, Sonos stock hit a new high of 23.60, racing 57% above its IPO price. The IPO's lead managers included Morgan Stanley, Goldman Sachs, Allen & Co. and RBC Capital Markets.

"It is a top choice for audiophiles, which allows it to command premium pricing," analysts at Renaissance Capital wrote on Wednesday. "Speaking to its loyal customer base, 38% of new product registrations during fiscal 2017 came from existing customers."

In recent weeks, the strongest performers included clean energy power generator Bloom Energy (BE), up 67% on Bloom's first day on the NYSE; Chinese e-commerce platform Pinduoduo (PDD), up 32% on the first trading session on the Nasdaq; and enterprise software firm Tenable (TENB), up 32%.

When Is Uber IPO?

New debuts include real estate service giant Cushman & Wakefield (CWK), which priced its IPO at $17 a share, the midpoint of its preliminary pricing range of $16 to $18, and raised $765 million. The stock finished Thursday's market debut at 17.81, and on Friday it rose as much as 9% to reach a new high of 19.45. Cushman scored $6.92 billion in revenue last year, up 11%. But it lost $1.02 a share.

But if you're watching for the eagerly anticipated IPO debut of Uber, Airbnb or SpaceX, you'll have to wait awhile. None of those IPOs of tech unicorns — young tech companies with market values of over $1 billion — is likely this year.

Lists of leading new stocks, IPOs soon to be priced and prices of recent IPOs can be found in the IPOs section of this site's IBD Data Tables page. A select number also appear on the IPO news and stocks to watch topic page.

Best IPOs Of 2018

Click the symbols below to learn more about each of the IPO stocks. Data as of Aug. 2, 2018.

Company Symbol Market Debut % Change Since IPO price IPO Price Market Value ($Mil)

AGM Group (AGMH) 4/18/2018 198 10 321
Inspire Medical Systems (INSP) 5/3/2018 187 11 970
Huya (HUYA) 5/11/2018 179 51 1,447
Goosehead Insurance (GSHD) 4/27/2018 178 80 378
CLPS (CLPS) 5/24/2018 168 63 172
Solid Biosciences (SLDB) 1/26/2018 151 5 1,401
Zscaler (ZS) 3/16/2018 131 31 4,440
Allakos (ALLK) 7/19/2018 130 4 1,689
DocuSign (DOCU) 4/27/2018 103 30 9,068
nLight (LASR) 4/26/2018 91 76 1,048
Zuora (ZUO) 4/12/2018 85 3 465
Cactus (WHD) 2/8/2018 81 84 880
PlayAgs (AGS) 1/26/2018 80 39 1,087
Pluralsight (PS) 5/17/2018 79 4 1,703
Avrobio (AVRO) 6/21/2018 72 2 786
iQiyi (IQ) 3/29/2018 69 41 10,170
Columbia Financial (CLBK) 4/20/2018 69 44 1,945
Bloom Energy (BE) 7/25/2018 63 37 512
Pivotal Software (PVTL) 4/20/2018 59 34 1,950
Ceridian HCM (CDAY) 4/26/2018 58 59 4,815
Evolus (EOLS) 2/8/2018 56 3 528
Smartsheet (SMAR) 4/27/2018 56 3 2,414
Avalara (AVLR) 6/15/2018 55 12 2,430
Crinetics Pharma (CRNX) 7/18/2018 55 3 598
BJ's Wholesale Club (BJ) 6/28/2018 52 76 3,404
Cardlytics (CDLX) 2/9/2018 46 34 367
Neuronetics (STIM) 6/28/2018 43 7 412
Dropbox (DBX) 3/23/2018 42 42 2,159
Establishment Labs (ESTA) 7/19/2018 41 5 469
Tilray (TLRY) 7/19/2018 40 3 401
Autolus Therapeutics (AUTL) 6/22/2018 40 6 928
Biofrontera (BFRA) 2/14/2018 38 20 303
Aptinyx (APTX) 6/21/2018 38 5 740
EVO Payments (EVOP) 5/23/2018 35 21 367
Americold Realty Trust (COLD) 1/19/2018 35 13 3,080
Sonos (SONO) 8/2/2018 33 2,048
Tenable (TENB) 7/26/2018 33 5 2,735

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