With SNAP closing today way above the $17 IPO price, but below its previous 3 day all-time low of $24.41 (which means all long positions opened anywhere in the past 3 days and held since are currently underwater), a good opportunity appears to reflect on the performance characteristics of IPOs in general.
Prof. Jay R. Ritter recently published an updated "Initial Public Offerings: Updated Statistics on Long-run Performance" document, as a follow-up to his 1991 paper "The Long-Run Performance of Initial Public Offerings".
Some highlights:
- Average first-day return is a fairly splendid 17.9%, so getting in on the IPO itself and flipping the shares at the end of the first trading day is a fairly sensible strategy.
- Average 3-year buy-and-hold returns, on the other hand, aren't nearly as great when adjusted for market returns over the same period of time - suggesting valuation and business uncertainties, especially for smaller companies, are considerable.
- The best market-adjusted 3-year buy-and-hold returns on IPOs are for companies with considerable sales (above $1b) prior to going public. These companies also enjoy the smallest typical first day "pop" in valuation.
Submitted March 06, 2017 at 05:20PM by wpawz http://ift.tt/2muFFG4
