New IPO stocks performance in 2020

Plus 5 New IPO stocks in December 2020 worth looking at

IPO stocks tend to be risky plays and not for the faint-hearted. 2020 looks to be a blockbuster year for new IPO stocks listed in the US, with the majority trading above their IPO price.

Out of this list of 117 new IPO stocks (not fully comprehensive, with the exclusion of reverse takeovers), only a handful are trading below their IPO price while the majority are trading significantly more than their IPO price.

Which new IPO stocks in 2020 has the honor of being crowned the best performing IPO in 2020 (based on the current share price as of 26 Nov 2020 vs. IPO price)? Do bigger IPO stocks perform better than smaller ones? Which are the 5 new IPO stocks in December 2020 worth taking a closer look at?

All of these will be addressed in this article.  

Before that, a quick explanation of what is an IPO stock.

What is an IPO stock?

Most investors would probably have heard of the term “IPO” before. IPO stands for Initial Public Offering. It is the process through which a privately held company offers shares to the public and begins trading on a stock exchange like the New York Stock Exchange or the Nasdaq.

The term IPO company can also refer to companies that have recently gone public and are now actively trading on the stock market.

How IPOs work

 Any privately held company can go public through an IPO. Often, companies that IPO are start-ups in the tech industry or another high-growth field funded by venture capitalists, but they can also be mature companies that are held by private equity firms looking to cash out.

The typical timeline of the US IPO Process:

1. Hires Investment banks to underwrite the IPO.
2. File a registration statement which includes a prospectus, providing detailed information on areas such as its core business model, financial results, future growth outlook, etc.
3. The underwriter needs to perform due diligence to ensure that all the information filed by the IPO company is accurate
4. Address SEC concerns if any
5. Go on a roadshow to promote the stock to institutional investors.
6. When a major block of shares has been sold or subscribed by institutional investors, the IPO company set an initial price and date for the stock to begin trading
7. On IPO day, the underwriter will sell shares to the general public in the stock market. Price movement tends to be very volatile.

Why go public?

The key benefit of going public for the IPO company is for the key management/shareholders to monetize their existing stakes in the company. This is often seen as a way to reward stakeholders such as employees, founders, early investors, etc who own the company stock but can’t do much with it until that stock starts trading publicly.

Once the stock is publicly traded, they can easily sell their shares after the lock-up period, if any, has passed.

The company will not have easier access to new capital as they can raise capital from the capital market through a potential rights offering.

A public company tends to be viewed more favorably by banks as well, which increases their likelihood of obtaining cheaper bank financing to fund their operations.

There are however some drawbacks to being a listed company, with additional compliance required, recurring listing fees, and the constant “scrutiny” by public shareholders. This often means that the existing management/founders will lose some control over the company, as well as time and money, in exchange for that additional funding.

Are new IPO stocks good investments?

IPOs are not always great for individual investors, especially the greenhorns who “invest” on hearsay. Though investing in IPOs can be hugely profitable, it’s generally a much riskier prospect than investing in established blue-chip stocks with a history of solid performance.

However, the right IPO stocks can reap huge returns when they are successful. Some examples are Tesla which priced its IPO at a split-adjusted $3.40/share and the stock is currently at $574. Zoom Video Communications priced its initial offering at $36/share in 2019 and is currently at $443.

It is important however to note that most IPO stocks tend to fail and underperform the market. This is because unlike the general market index, such as the S&P 500 which is composed of the 500 largest market cap companies in the US, many of them highly profitable, most of these new IPO stocks are loss-making and will likely continue to be loss-making for years ahead.

The key driver of stock price performance for new IPOs is often how fast they can grow their sales. Once that growth disappoints the market, the share price will likely be under heavy selling pressure.    

Those inclined to invest in IPO stocks should therefore take the time to vet the issuing companies carefully before moving forward.

With that said, let’s disclose the Top 3 best performing new IPO stocks of 2020.

I will follow-up by unveiling the full list of new IPO stocks in 2020 and their YTD performances as well as further analysis of the price performances between small and large IPOs in 2020.

I will close off this article with an introduction of 5 new IPO stocks in December 2020 worth looking at.  

Top 3 best performing new IPO Stocks of 2020

#3 Best Performing New IPO Stock: XPeng

Xpeng or Xiaopeng Motors also known as XMotors.ai is a Chinese electric vehicle manufacturer. 

From barely $1 million in sales in 2018, XPeng has already rushed ahead to book more than half a billion dollars in sales over the last 12 months. By 2022, analysts project XPeng will tip the scales at a mind-boggling $4.1 billion (according to data from S&P Global Market Intelligence).

If they’re right about that, this company will have gone from $1 million to more than $4 billion in sales in less than four years.

Last week, the company unveiled a “next-generation autonomous driving architecture” in which its electric cars will become increasingly autonomous (i.e., self-driving) as they’re outfitted with cameras, radar, ultrasonic sensors — and lidar (laser for imaging, detection, and ranging).

As XPeng boasted in its press release, it will be the first car company in the world to incorporate lidar into a production-ready car, beginning with vehicles in its 2021 model year lineup.

The company IPOed at $15/share on 27 August 2020 and in a short span of just a few months, their share price is now at c.$64, or a 330% return from its IPO price, with the company commanding a market cap of US$46bn, making the company one of the largest new IPO company in this list, after Snowflake, KE holdings, and Palantir Technologies.

Will its uptrend continue? Based on the street’s target price estimate, the company’s valuation seems to be currently on the high side.

#2 Best Performing New IPO Stock: Keros Therapeutics

Still a very small company despite being the second-best new IPO stock performer in 2020, Keros Therapeutics Inc is a clinical-stage biopharmaceutical company focused on the discovery, development, and commercialization of novel treatments for patients suffering from hematological and musculoskeletal disorders with a high unmet medical need.

The company’s protein therapeutic product candidate, KER-050, is being developed for the treatment of low blood cell counts, or cytopenias, including anemia and thrombocytopenia, in patients with myelodysplastic syndromes, or MDS, and in patients with myelofibrosis.

The company is currently valued at a market cap of US$1.8bn, small compared to the rest of the IPO candidates in this list. However, if you had the fortune of investing in this company at its IPO price of $16/share on 8 April 2020, that would have generated you a total return of 370%.

Based on the street’s valuation, the company has a median target price of US$60/share vs. its current share price of US$76/share.  

 #1 Best Performing New IPO Stock: CureVac

The honor of the best performing new IPO stock in 2020 goes to CureVac. The company IPOed on 14 August 2020 at US$16/share and is currently at US$86, giving the company a market cap of US$15.4bn and a total return of 400+% over this period.

CureVac is a clinical-stage biopharmaceutical company, developing a new class of transformative medicines based on messenger ribonucleic acid that has the potential to improve the lives of people.

The company’s product portfolio includes clinical and pre-clinical candidates across multiple disease indications in oncology, prophylactic vaccines, and protein therapy.

Its clinical programs are CV8102, which it is evaluating in a Phase 1 clinical trial for the treatment of four types of solid tumors, and CV7202, which it is investigating in Phase 1 clinical trial for potential vaccination against rabies.

It is also rapidly advancing its mRNA vaccine program against coronavirus SARS- CoV-2), for which the company initiated a Phase 1 clinical trial.

The company is only covered by 2 analysts in the street with a median target price of US$73/share vs. its current share price of US$86/share. An extremely volatile stock and not for the faint-hearted, CureVac saw its share price popping to US$70+/share shortly after its IPO (IPO price of $16/share) before collapsing to the low-40s in late September 2020. It has since rebounded to an all-time of US$86/share at present.

Full list of 2020 new IPO stocks price performance

Further analysis of the price performance of new IPO stocks

I am also interested to find out how did larger IPOs (based on IPO market cap) perform relative to their smaller IPO counterparts.

For that, I sort the companies based on their initial IPO market cap. There are only 11 companies with an initial IPO market cap each greater than US$10bn. Among this list of stocks, the average share price appreciation was slightly north of 100%. However, the median price appreciation is only at 46%.  

Of the 11 new IPO stocks, only 1 (Natura & Co Holdings) is currently underwater while the majority is currently trading above its IPO price.

Next, I look at new IPO stocks with an initial IPO market cap of between US$1bn and US$10bn. Their average share price performance on a YTD basis is approx. 71%. The median price appreciation is at 40%.

Lastly, the smallest new IPO stocks have the best average and median share price performances. Many of these new IPO stocks are pharmaceutical plays and are likely extremely high risk in nature. Most of these stocks will likely be flying under the radar and not as well-known as tech stocks such as Palantir, Snowflake, etc that are the ones likely to make the headlines.

For those interested to find which are the new IPO stocks that have just IPOed so that you can jump on the early bandwagon, you can screen for these new IPO stocks using a platform like Stock Rover. There are currently 4 IPO stocks that are newly listed in November. These 4 stocks are Ozon Holdings, Apollo Strategic Growth, Telos, and PureTech Health. They might be at their early innings of a more substantial share run ahead.

Once again, I will like to caution my readers that investing in IPO stocks is a highly risky venture and this article is by no means a recommendation for any of the stocks listed but purely for informational and educational purposes.  

5 New IPO stocks in December 2020 worth a second look

The 2020 IPO parage prepares to close with a bang as flashy display of big-name tech companies prepares to go public. Here are the 5 new IPO stocks that you might want to have on your watchlist.

Airbnb

• Expected IPO timeline: December 2020
• Estimated IPO valuation: $30 billion-plus

Airbnb is one of the few remaining upcoming IPOs of 2020, and it’s likely to be one of the largest. The offering is expected to go live in December, and the home-renting firm is expecting to fetch a valuation of more than $30 billion.

COVID-19 has hit the company hard. The US is enduring a second wave of COVID-19 which could mean a tough winter season for travel. But the rollout of vaccines should lead to an eventual acceleration in the top line, likely later in 2021.

This is likely one of the more popular IPO names that most would be aware of.

DoorDash

• Expected timeline: December 2020
• Estimated IPO valuation: N/A

DoorDash was started in 2020 to solve one key problem for restaurant owners. Delivery. DoorDash started as a delivery app based on an on-demand system.

The company has since amassed more than 390,000 merchants, 18 million customers, and one million “Dashers”. It also has forged partnerships with 175 of the 200 largest national restaurant brands.

Unlike Airbnb, COVID-19 has been a boon to DoorDash, whose first 9 months of revenue surged from $587m in 2019 to $1.92bn in 2020.  

Wish

• Expected timeline: December 2020
• Estimated IPO valuation: N/A

Founded in 2010, Wish is a mobile-first e-commerce app that currently has more than 100 million monthly active users (MAUs) across more than 100 countries. Roughly 500,000 merchants use the app to sell some 150 million items.

Most of the merchants are based in China because of the competitive prices and the long history of exports. However, Wish has started to diversify this base with increases in North America, Europe, and Latin America.

Wish’s revenues grew at a moderate 10% in 2019. But it has seen an acceleration in 2020 primarily thanks to the impact of COVID-19. Sales have jumped 32% year-over-year to $1.75 billion for the first nine months of 2020.

Net losses, however, remain high at $176 million so far in 2020.

Affirm

Affirm was founded by one of the co-founders of PayPal, Max Levchin.

Levchin’s goal was to create an offering that’s highly transparent and has no late fees or penalties. The Affirm card also was built to allow customers to develop their payment schedules as well as split payments.

The company has attracted more than 5.6 million users, and its merchant base includes the likes of Walmart, Wayfair, and even ascendant Peloton Interactive, which is one of the company’s largest clients.

One major competitive advantage Affirm boasts is the AI technology that helps to manage the lending risks. The analysis takes only a few seconds to complete and is based on data from more than 7.5 million loans and over six years of repayments.

In fiscal 2020, revenues soared by 93% YoY to $509.5 million, while net losses have continued to decline. In the most recent quarter, the company’s red ink of $15.3 million was less than half the year-ago period’s $30.8 million in losses.

Roblox

• Expected timeline: December 2020
• Estimated IPO valuation: $8 billion

Online gaming IPOs have historically not done well but Roblox is looking to buck the trend.  It primarily focuses on kids, for one; about a quarter of users are under age 9, and 29% are between the ages of 9 and 12. 

And it has built a platform that makes it easier for anyone to develop a game, which has reduced the risk of relying on just a few titles for success. The platform features more than 960,000 developers that have created over 18 million “experiences.”

Roblox currently boasts more than 31.1 million daily active users (DAUs) across more than 180 countries, and those users have spent 22.2 billion hours playing games over the past nine months.

During this same period, revenues jumped 68% year-over-year to $588.7 million.

Conclusion

The article looks to evaluate the performances of new IPO stocks. In short, 2020 has been a fantastic year for IPO stocks in general, with both large and small IPOs performing relatively well.

Small IPOs that have performed well tend to be biopharmaceutical plays which tend to be highly risky with volatility on the high side.

Larger IPOs tend to be the tech counters which have garnered a lot of attention of-late in a COVID-19 environment that tends to favour the selection of tech stocks.

Lastly, there are a number of interesting Dec 2020 IPO plays such as Airbnb, DoorDash etc that might be worth your consideration.      

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Disclosure: The accuracy of the material found in this article cannot be guaranteed. Past performance is not an assurance of future results. This article is not to be construed as a recommendation to Buy or Sell any shares or derivative products and is solely for reference only.