IPO Return Analysis

June 08, 2011 | Christopher Caparelli, CFA, Managing Partner

Last week’s chart addressed the increase in IPOs during 2011. In addition to the number of companies coming to market, the returns of these companies post-offering can also serve as an important metric. So far in 2011, stocks that have been public for less than one year, as measured by the Bloomberg IPO index, have returned a positive 4.1%, yet are lagging behind the broad Russell 3000 index which is up 6.7% for the year. While the returns of newly listed companies are often linked to the general direction of the market in which they trade, severe dislocations like the occurrence in 1999 are cause for concern. Although there is some concern about the rapid price increase witnessed for some of the IPOs in 2011, we are still far from the misplaced exuberance of 1999.