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The initial public offering (IPO) market is alive and well again, now that broader stock markets have broken out of last year's bearish slump. Though September has introduced a wave of volatility into markets, don't count on recent (and coming) IPOs to lose any of their luster. This year's lineup of IPOs isn't just intriguing; it could provide investors with exposure to some unique high-growth markets.
As with any recent IPO, it's essential to be mindful of the price you will stand to pay. It doesn't matter if you're getting into the hottest IPO in the past decade; if you overpay, you can not only lose money - but you could get absolutely crushed, as IPOs tend to be profoundly volatile. A huge double-digit percentage point move could precede an even larger double-digit move lower. Indeed, if you've followed recent IPOs before, you'll know how dangerous it can be to blindly buy the hottest new issue on Wall Street.
IPO Class of 2023: It's Hard Not to Feel a Sense of FOMO!
Undoubtedly, most investors - especially beginners - would likely be better off waiting until after the dust has settled surrounding recent, heavily hyped IPOs. The risks just aren't worth taking, especially if you don't possess enough historical information to factor into your personal valuation of a company. Of course, there's quite a bit of the fear of missing out (FOMO) mindset that can draw you to the hottest new IPO. The 2023 rookie class is the most promising in quite a while, after all.
But as the September market slump turns into a spooky October, the appetite for IPO speculation could falter, and the slate of recent IPOs could face considerable downside risk. Could shares of recent new issues fall below their IPO prices if things get really ugly?
Well… potentially. And if they do, contrarians may wish to give them a second look as markets fall into oversold conditions. In any case, let's have a look at two recent IPOs to keep on your radar.
Arm Holdings
Arm Holdings (ARM) has been the year's hottest IPO, with shares blasting off the IPO price of $51 and briefly breaking the $60 mark before coming back to earth. Today, shares of the red-hot semiconductor company are going for $53 and change - still above the IPO price, which many pundits believe was inflated to begin with.
Even amid September's stock market turbulence and recent bearish ratings from analysts, Arm stock is still doing a relatively decent job of holding its own. As an IPO with a foot in the artificial intelligence (AI) waters, it's hard to imagine that shares will fall substantially below the IPO price unless all of the tech sector rolls over.
Either way, Arm is a very important tech firm, which - while overvalued currently (135.4 times trailing price-to-earnings) - could prove a smart buy for long-term investors on any notable weakness going into year's end.
I wouldn't reach out for shares right here, as they're still too hot to handle. However, they're definitely worth watching closely as AI enthusiasm tempers a bit.
SharkNinja
SharkNinja (SN) is a household appliance company that had a relatively quiet debut on the NYSE back in July. Unlike Arm, which has been cooling off in recent weeks, SharkNinja stock has been heating up, surging from $26 and change to around $46 per share. Undoubtedly, the firm earned a handful of bullish ratings for its unique growth story.
For those unfamiliar with the company, it's behind a wide range of well-designed home products. Through its Shark brand, it sells non-kitchen goods, including vacuum cleaners, air purifiers, and steam mops. And though its Ninja brand, it offers several kitchen appliances, many of which have taken the world by storm.
What's SharkNinja's secret sauce? Why is such a small firm ($6.24 billion market cap) so successful at competing in an otherwise mature (and boring) market?
Upbeat analysts, including Philip Blee of William Blair, think the company's R&D engine differentiates it from the pack. Further, the company's agility, as a smaller firm, can help it gain an edge over bloated rivals that may have shied away from expenditures.
As of this writing, the stock trades at 35.1 times trailing price-to-earnings. Given it's a small player in a big market with a potential tech-driven edge, I'd argue shares could more than grow into this multiple - making it one of my favorite IPOs to consider at current prices.
Bottom Line
Investing in IPOs can be risky. Arm and SharkNinja are two in the class of 2023 worth keeping on your watchlist. But if I had to pick one to buy today, it'd have to be SharkNinja. It's arguably still cheap, even after its recent rally.
On the date of publication, Joey Frenette did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
