Lower Expectations Leading To More Reasonable IPO Valuations

To say that 2016 has been a disappointing year for investors and traders looking to capitalize on a hot initial public offering is an understatement.

Throughout the first quarter of 2016, only nine companies saw their stock trade on a public exchange for the first time this year as a public company. Despite the fact that the number of companies that successfully completed an IPO in the second quarter was more than 30, 2016 remains on track to be the worst year for IPO.

IPO activity has picked up since May, The Wall Street Journal noted. However, results from the "Brexit" vote may have "sparked a fresh bout of volatility" in the stock market that represents "another hiccup" for the IPO market.

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According to bankers and analysts WSJ spoke to, companies shied away from an IPO in the first quarter of the year due to sharp swings in the stock market, a disappointing performance of companies that went public in 2015 and lackluster fund performance by money managers that typically invest in new stocks.

"I think companies, or the sponsors of the companies, are absolutely understanding the market is tenuous and are more understanding on price," Frank Maturo, vice chairman of equity capital markets for the Americas at UBS Group AG told WSJ.

On the other hand, companies that went public in 2016 have seen their stocks trade higher by 16 percent on average from their officer price. By contrast, companies that went public in 2015 have seen their stock price slashed by 11 percent on average.