Holding Oneself to Account: IPOs in 2023
A look at my (extremely short) track record of reviewing IPOs and the takeaways for 2024.
Happy New Year to everyone! I hope you all had a pleasant and reinvigorating holiday season. Let’s dive right into 2024 by looking at some of the things we explored in 2023, starting with the IPO market.
Here is news that should surprise no one: the IPO market is an investing minefield. The volume of crappy companies looking to cash out or grifters hoping to dupe some investors is almost overwhelming.
I knew this when I started investigating IPOs, but I didn’t quite appreciate how much garbage was dumped on the public markets in any given year. Here are some stats that may make your stomach turn.
There were approximately 180 IPOs and corporate spin-offs in 2023. I say approximately because I’m relying on stockanalysis.com and found one company missing from their IPO list. So, let’s assume it’s in the ballpark of correct.
Of those 180 IPOs and spin-offs, 77 (42%) produced a positive return. Many positive returns were recently issued SPACs yet to find an acquisition target. Forty-six publicly traded businesses (23%) generated a positive return if we remove these SPAC placeholder tickers. Sifting it down even further, 22 of them (12%) produced a return greater than the annual return of the S&P 500. There is a chance that more of them beat the market depending on when they went public, but I didn’t track down all of that information in time.
The four largest or most popular IPOs this year were undoubtedly CAVA Group (NASDAQ: CAVA), Arm Holdings (NASDAQ: ARM), Kenvue (NYSE: KVUE) and Birkenstock Holdings (NASDAQ: BIRK). The Birkenstock IPO may not have been the hottest company to go public, but I want an excuse to remind everyone that the CEO went on CNBC with so many undone buttons that he looked like he was on the cover of a cheesy romance novel. Legendary stuff.
Investing in only these four issues would have been a relatively good trade. Cava ended 2023 up 95.3%, Arm up 47.3%, Birkenstock up 5.93%, and Kenvue down 2.14%.
All in all, this is a pretty decent result. There are thousands of publicly traded companies in the United States, and only 42.6% have ever been able to beat the returns of 1-month Treasury bills over the past 98 years. So 42% positive returns and 23% beating broader indices is higher than the performance of existing listings.
Here’s what should make investors nervous about IPO investing, though. 38% of 2023 IPOs have already dropped more than 50%, and 28 stocks (15.5%) lost more than 80% of their value in less than a year. If you were to post tickers on the wall and throw darts at it, you are more likely to have landed on a catastrophic loss than a market-beating company.
The whole point of stock picking is to pick the ones that outperform and screen out the duds, though. I highlighted 11 IPOs in 2023 as intriguing ideas. Surely, I did better than a dart throw, right?
Let’s take a look.
Shoutout to Koyfin for their data and charts. Koyfin has become an integral part of how I screen for, track, and analyze companies. It has made the analysis process much faster thanks to having a decade of data at my fingertips instead of manually going through stacks of quarterly and annual filings.
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