Q: What have been the best-performing IPOs and what do they tell us about the future of new companies going public?
By Spencer Platt, Getty Images
Youku.com executives ring the bell of the New York Stock Exchange after the Chinese company went public December 8, 2010.
By Spencer Platt, Getty Images
Youku.com executives ring the bell of the New York Stock Exchange after the Chinese company went public December 8, 2010.
A: Initial public offerings are lagging, not leading, indicators.
IPOs, or initial stock offerings from companies, trail the trends of the broader stock market. Only after the stock market is performing well, and remains healthy, will investors start to entertain buying shares from newly public companies.
Similarly, almost immediately after the broad stock market runs into trouble, companies start pulling their IPOs knowing that investors will no longer have an appetite for the deals.
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With that said, when you start seeing more activity from IPOs, that's generally a solid confirmation investors are feeling better about the market. Greater IPO activity is a sign that companies are feeling better about the valuations in the stock market and more willing to sell.
The IPO market gives a glimpse of where some of the economy's innovation and job creation is coming from. Most companies have evolved beyond the upstart stage by the time they're ready to file to go public. And the IPOs that get the most attention from investors tend to give an idea of what industries are in favor or fashion at the time.
So far, over the past 12 months, the best performing IPOs have been: Molycorp (MCP), up 430%; Broadsoft (BSFT), up 381%; Youku.com (YOKU), up 369%; Vera Bradley (VRA), up 178%; and Qlik Technologies(QLIK) up 170%, says Renaissance Capital.
Drilling down a bit more, we see that so far this year the following trends are emerging:
• The U.S. is back. The U.S. is tops with the amount of proceeds generated by IPOs with $16.8 billion, but China is close behind with $15.2 billion in proceeds, Renaissance says.
• Technology is leading the charge. So far, of the 43 IPOs priced this year, 13 have been from the technology sector, Renaissance says. That's a bigger representation than any other industry.
• Performance has been strong. So far, U.S. IPOs have gained 9.9% from their offering prices. This is a solid return that, if it continues, will likely attract more investors and more companies to the IPO market.
But again, keep in mind the IPO market takes its cues from the broad stock market, not the other way around. If the market, defined by the Standard & Poor's 500, runs into trouble and begins to stumble, it won't be long for the IPO market to follow.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz
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