Wall Street is abuzz with next month's expected blockbuster debut of Elon Musk's rocket and satellite maker SpaceX, but few of the biggest initial public offerings (IPOs) in recent years have paid off for investors who bought in when the deals came to market.
A Reuters analysis of the 50 IPOs with the highest valuations in the past five years shows that investors would have been better off buying an S&P 500 index fund about three-quarters of the time. The data underscores the difficulty of finding bargains among companies whose valuations have often surged long before the stock's debut.
An investor who bought each of the IPOs tracked by Reuters would be up an average of 27% through May 21. That compares to an average gain of 53% in the S&P 500 over those same periods. The analysis assumes the buyer would be able to purchase shares at the IPO price – often not possible for a retail investor – or simply buy the broad-market S&P.
Historical returns for investors buying during the frenzied first day of trading of a stock fare even worse, the analysis showed.
"It's difficult to make money unless you're in the early stages of these things and buying these things before the IPO," said Dennis Dick, a proprietary trader at Triple D Trading.
