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Private companies making the shift to the public markets via an initial public offering (IPO) often represent the most promising business ideas, frequently carrying high valuations and lofty investor expectations. Unsurprisingly, the IPO market has been relatively quiet over the past several months, which means that traders have been presented with the opportunity to look back at some of the most popular IPOs from the past year or two and determine how they are doing relative to their initial expectations. Those public companies that have managed meet or exceed their initial expectations could be a good way to find portfolio-worthy investment candidates.
Renaissance IPO ETF (IPO)
Investors looking to analyze companies that have gone public over the past two years and are yet to be included in major market indexes often turn to exchange-traded products such as the Renaissance IPO ETF (IPO). As you can see from the chart below, the price of the fund has recently risen above the resistance of an influential trendline, which will likely be used by active traders to mark the beginning of the next leg of a major uptrend. Some traders will most likely want to use the recent retracement toward the new-found support of the 50-day moving average ($41.65) as an opportunity to add to their positions and to maximize their risk-to-reward ratio. From a risk-management perspective, stop-loss orders will most likely be placed below $33.43 in case of a sudden shift in broad market sentiment.
Zoom Video Communications, Inc. (ZM)
The added reliance on electronic video communication over the past several months has put Zoom Video Communications, Inc. (ZM) into the spotlight of investors and consumers alike. As you can see from the chart below, the price has been trading along a well-defined upward trendline and its 50-day moving average since early February. These strong areas of support have provided clear levels for the placement or buy and stop orders, and many traders will likely continue to use these levels over the weeks ahead.
Pinterest, Inc. (PINS)
As another top holding of the IPO ETF, Pinterest, Inc. (PINS) will most likely capture the attention of traders over the days ahead. Strong quarterly earnings and an analyst upgrade have combined to fuel a break beyond a key level of resistance, shown on the chart by the blue circle, which from a trader's perspective could mark the beginning of a major move higher. Stop-loss orders will most likely be placed below the dotted trendline or the 50-day or 200-day moving averages, depending on risk tolerance and outlook.
The Bottom Line
Despite a relative slowdown in global IPOs of late, companies that have gone public over the past couple of years could be worth a closer look. Now that these companies have several quarters of earnings history behind them, traders should be able to get a good sense of whether or not the lofty expectations around their IPOs have proven to be valid.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.
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August 12, 2020 at 12:35AM
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Traders Look to the IPO Market for Their Next Idea - Investopedia
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