Buying IPOs: Are They Really Worth All the Hype?

Core Insights - Initial public offerings (IPOs) are highly anticipated by investors, but not all IPOs perform well, as evidenced by Navan (NAVN), which saw a significant drop in its stock price on its debut [1][2]. Group 1: IPO Performance Overview - NAVN's stock price fell 20% from its $25 IPO price on the first trading day, raising questions about future performance [2]. - A review of approximately 170 IPOs since 2010 indicates that, on average, stocks have performed well, with a six-month return of around 12% and a one-year return of nearly 27% [3][4]. - Despite strong averages, the median six-month return was just below breakeven, and the median one-year return was only 2.6%, highlighting the volatility of early IPO investments [5]. Group 2: Long-term Performance of Underperforming IPOs - An analysis of IPOs that lost money on their first trading day, similar to NAVN, shows that these stocks averaged a return of about 24% over the next six months and 48% over the next year [6]. - The median one-year return for these underperforming IPOs was 7.62%, with 58% beating the S&P 500 Index (SPX) over the next six months, but only 43% outperforming the index over the next year [7]. Group 3: Performance of Successful IPOs - A separate analysis of IPOs that exceeded expectations on their first day, returning at least 75%, was conducted, although specific performance metrics for this group were not detailed in the provided content [9].