Everyone has heard the phrase, “If I could read the future, I’d get into the stock market,” in some form or another, and for good reason: the Market is incredibly unpredictable and often seems like it has a mind of its own. Even the best technical and fundamental analysts can’t quite seem to nail down a stock’s precise movements.
But is it at least possible to tell if a company will simply grow or not? Maybe, and here’s an idea on how to do so: take a look at at its first day.
With three exceptions in the 2011 IPO class, every single company that is still growing today grew on its first day. Only three companies are currently growing after falling on their first day of trading–the most successful being Spirit Airlines. This trend holds across industries, though it does vary in levels of strength depending on which industry you narrow it down to.
Perhaps this isn’t surprising. If an IPO falls on its first day, not only does it reflect a lack of enthusiasm among investors for the particular company, it signals an unease about that company’s future. It’s that last part that’s especially worrying. An IPO should be an exciting time for a company–a sign that the company is currently solid but also armed with a growth plan. A first-day fall casts doubt on both.
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But this won’t tell you whether a company will “grow or not”. It will only tell you if a company will not grow (if their 1st day is negative). You still can’t tell if a company *will* grow, since as your “Positive 1st Day Growth” section shows, positive 1st day growth isn’t correlated with anything.
True. If it were that easy there’d be no need for other analysis. But for at least this year’s class, it’s not a bad predictor of which companies to avoid. More than 50% of positive 1st-day-ers are still growing, compared with just over 11% for the negative class.
Recent offerings Ubiquiti and Zeltiq both follow this trend. Of course they could turn negative in a day–lots of things affect stock prices, that’s why they’re so difficult to predict.