IPO Boutique has been handing out ‘5’ Ratings, what gives?
If you are an IPO Boutique subscriber, you have seen us hand out a ‘5’ rating on three different deals, nCino Inc (NCNO), Berkeley Lights (BLI) and Jamf Holdings (JAMF), over the past two weeks. The trio has not disappointed with gains of 129%, 132% and 77% at first trade versus issue price, respectively.
IPO Boutique has now rated just seven deals as a ‘5’ since mid-2012.
Investors Business Daily reporter Brian Deagon follows IPO Boutique’s research and ratings closely. He noticed the ‘boom’ in IPOs and wrote a bit about us last week and this week on the hot deals.
So, what gives?
The gains of IPOs at this time are extraordinary and the market is oversaturated in speculation. The best explanation, in our opinion, can likely be broken down by the sectors in which these companies operate.
The software sector, in which the likes of nCino Inc (NCNO) and Jamf Holdings (JAMF) operate, are given a premium valuation by the public.
But why wouldn’t they? Similar domestic software companies that currently trade publicly have enjoyed meteoric rises. One “could” correlate investor speculation and the premium multiples given to this sector based upon the “potential” demand for software in a post-coronavirus environment. The cost of ‘work-from-home’ software could benefit these type of companies. However, with a lofty opening print for these stocks….beating those expectations are “practically” priced in.
We were quoted in a Reuters article today about Jamf Holdings demand.
“The demand for Jamf’s deal was overwhelming. The appetite for software companies with this type of growth profile is marking valuations higher and higher”, said Jeff Zell, senior research analyst and partner at IPO tracking firm IPO Boutique.
Now, how about the biotechs?
The likes of NKarta Inc (NKTX), Berkeley Lights Inc (BLI) and Relay Therapeutics (RLAY) have caught recent headlines when their deals more than doubled in their first few sessions. But biotechs have been on fire for a while. In fact, the last 19 biotechs that have come public have averaged a 51.8% gain at first trade. There is a larger “speculation game” at play amongst traders after seeing names in the biotech sector trade markedly higher during the coronavirus pandemic period. But even furthermore with biotech IPOs, the offering’s are allocated to a “filtered” group. The deals that are “the hottest” have directed its shares to sector-dedicated funds that are in it for the long haul.
So, a speculative sector in conjunction with no stock being around shoots the stock higher.
The three biotech’s we mentioned (NKTX, BLI & RLAY) are very good companies…but the valuations that the public is “paying up” for have priced in a lot of good news.
Bottom line: Times are good in IPO land for IPO investors.
The investors that can buy shares at the IPO price have had the type of run not seen since the early 2000s. And with a pipeline full of promising IPOs, there are still many winners to come.
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