Motley Fool Money Revisiting the IPO Boom
Jul 23, 2022
In this discussion, Brian Feroldi, a Motley Fool contributor and investment expert, revisits the extraordinary IPO boom of 2021. He highlights the reasons behind companies going public and warns about firms that may never return to those high valuations. The conversation delves into the impact of rising inflation and interest rates on companies like Robinhood and Coinbase. Brian emphasizes the importance of cash flow analysis and sustainable practices, revealing crucial insights for investors navigating today’s turbulent financial landscape.
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Impact of High Valuations
- Many good businesses that went public saw their stocks decline similarly to companies with no revenue or cyclical demand.
- High valuations during the IPO boom contributed to these declines, despite continued performance and profitability.
IPO Index Decline
- The Renaissance Capital IPO Index is down 45% year-to-date, exceeding the S&P 500's 20% decline.
- Some newly public companies experienced even greater declines from their highs or issuance prices.
Reasons for Going Public
- Companies go public primarily to raise capital for growth and reinvestment.
- High valuations incentivized many companies to go public, taking advantage of minimal dilution.