IPO stocks are high-risk investments.
The initial public offering market has been red-hot in recent years, including a record 407 IPOs in 2020 alone. IPOs can be an exciting opportunity for investors to get in early on an excellent long-term investment. But many companies that choose to go public have tremendous risks associated with their growth outlooks, business models and even their IPO valuations. IPOs have produced some of the biggest winners for investors in recent years, but there have been plenty of costly IPO flops as well. Here are seven of the worst-performing IPO stocks in the past two years.
Casper Sleep (ticker: CSPR)
Mattress maker Casper Sleep’s problems started even before its stock hit the New York Stock Exchange. Casper initially targeted an IPO price range of between $17 and $19 per share and the company was even valued at more than $1 billion at one point. However, Casper ultimately sold its IPO shares at just $12, valuing the company at around $500 million. From that point, things went from bad to worse. Casper continues to report net losses and cash burn. Roughly a year after its debut, the stock trades at around $7.60, down about 30% from its reduced IPO price.
Online health insurance broker GoHealth priced its July 2020 IPO at $21 per share, raising $914 million. At the time, some analysts and investors were skeptical of the company’s nearly $6.6 billion valuation, which had more than quadrupled in less than a year. A year later those valuation skeptics have been vindicated. GoHealth shares dropped below $20 within the first two weeks of the stock’s first day of trading and they have not returned to that level since. The stock now trades at around $12, down about 43% from its IPO price.
Auto insurance startup Root is another example of a highly anticipated “insurtech” IPO that has failed to live up to the hype. The company went public in October 2020 after pricing its IPO at $27 per share. Root’s financial numbers since going public have not been what investors looking for disruption, innovation and growth like to see. The company’s stock price dropped almost 40% in February after the company reported a 50% decline in revenue and a 56% increase in net losses in the fourth quarter. In about six months, ROOT stock is down about 60% from its IPO price.
Popular e-commerce stocks such as Amazon.com (AMZN) and Shopify (SHOP) have been home runs for early investors. However, there have been plenty of e-commerce losers as well, and 2019 IPO stock ContextLogic is a perfect example. ContextLogic is the parent company of mobile-centric e-commerce platform Wish. The company went public in December 2020 at an IPO price of $24. In its first public earnings report in March, ContextLogic reported impressive 38% revenue growth but a $569 million net loss. In about four months since its IPO, WISH stock is already down 41% from its IPO price.
Lucira Health (LHDX)
Lucira Health’s recently launched all-in-one, at-home test kit is the first prescription at-home COVID-19 test authorized by the U.S. Food and Drug Administration. Lucira priced its IPO at $17 in early February. After initially surging to as high as $37.99 in its first few days of trading, the stock took a complete 180-degree turn. Investors may be betting that widespread vaccinations and immunity will weigh on demand for Lucira’s test kits. Whatever the reason, the stock is now down to around $9, about a 50% drop from its IPO price in only two months.
Sundial Growers (SNDL)
Canadian cannabis producer Sundial Growers went public back in 2019 at an IPO price of $13. There are plenty of bullish catalysts for cannabis stocks in the long term, but Sundial investors have faced one problem after another since the company went public. Shareholder lawsuits, aggressive dilution, negative gross margins and lackluster sales growth are just some of the issues that have weighed on Sundial shares. Most of the recent bullish cannabis catalysts have occurred in the U.S. market, where the Canadian company has limited exposure. Sundial shares are now down about 91% from their IPO price.
Super League Gaming (SLGG)
Esports have generated tremendous growth numbers in recent years. Market researcher eMarketer estimates U.S. esports digital ad revenue will grow to $226 million in 2021, up from just $143 million in 2018. Super League Gaming is a variant of professional video gaming that targets the amateur market. Super League has reported extremely impressive growth since pricing its IPO at $11 per share back in February 2019. In the most recent quarter, Super League revenue nearly tripled, but the stock still trades at an extremely lofty 69 times sales. SLGG stock is currently down 42% from its IPO price.
Seven of the worst IPO stocks:
— Casper Sleep (CSPR)
— GoHealth (GOCO)
— Root (ROOT)
— ContextLogic (WISH)
— Lucira Health (LHDX)
— Sundial Growers (SNDL)
— Super League Gaming (SLGG)
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