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Reviews caution in IPOs: tech IPOs in 2021 were terrible investments

13:30  11 december  2021
13:30  11 december  2021 Source:   fool.de

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IPOs of companies are always exciting for us investors. Because they increase our selection of possible stocks and allow us to participate early entrepreneurial story. There are enough examples of stocks that have made their early investors very rich.

But currently stand tech IPOs since abysmal: The vast majority of technology stocks in 2021 dared the IPO, there are at least 20% below their high - that is, by definition, in a bear market. From this, draw a valuable lesson for investors.

Why tech IPOs so miserable cut

Highly rated, high-growth companies that write red numbers were recently punished in the stock market. One can see the Starinvestorin Cathie Wood at the price development of the Ark innovation ETF that in 2018 with her (now surpassed) 4,000-US dollar exchange rate target was known for Tesla. Your fund lost 22% of its value since the beginning of November alone. Behind this is the fear of higher interest rates due to rising inflation. Higher interest rates depress growth stocks tend to be stronger than value stocks.

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The tech IPOs from 2021 it has taken again harder than the Ark Innovation ETF. The US financial media CNBC has made 55 IPOs in the technology sector identified. 54 of these stocks are in a bear market (as of closing prices of 6 December 2021). One stock that stood against the trend was the chip contract manufacturers Globalfoundries (SIN: A3C6AF).

The hit hardest tech IPOs included the Fintech Robin Hood (SIN: A3CVQC) with minus 74%, the automation software provider UiPath (SIN: A3CND6) with minus 50%, the crypto-trading platform Coinbase ( WKN: A2QP7J) with minus 39% and the electric car maker Rivian (SIN: A3C47B) with minus 35% since their respective highs.

What investors can learn from it for 2022

Probably the most important lesson for investors: Buy growth not at any price. Growth stocks have experienced a period of extreme outperformance of value stocks over the past decade. Behind it as a much stronger earnings growth, but for the most part put an upward valuation of these titles. This has paid great for growth investors in recent years. In particular, the large, well-known tech companies and platform providers have experienced extreme price increases.

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But this development just also increases the risk of setbacks. This is especially true for tech IPOs. Because the companies are unprofitable and usually need the capital from the IPO for its growth plans. Their high scores are based on promises. This makes these stocks particularly vulnerable.

If you want to avoid disappointment should increasingly in the future make sure that growth stocks can justify their high valuations on a realistic way. It should be recognized a clear, low-risk path, as the company could one day be worth considerably more than at the time of the IPO. If a stock fails this simple test, then its IPO is completely uninteresting to me - no matter how attractive it may sound.

The article caution in IPOs: tech IPOs were terrible in 2021 Investments was first published on The Motley Fool Germany .

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Christoph Gössel owns shares of Tesla. The Motley Fool owns and recommends shares of Tesla and UiPath Inc. and recommends Coinbase Global Inc.

Motley Fool Germany 2021

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usr: 1
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