Tuesday's Market Minute: Say No To IPOs?

WeWork yesterday announced that it was filing to withdraw its IPO after major issues with valuation and governance were revealed to the public. With this move, they lose out on $6B in loans they would've received if they'd raised at least $3B in an IPO this year. Its valuation has been slashed, its CEO and founder is gone, and the new management is beginning an enormous personnel and asset purge. A major stakeholder, SoftBank, is suffering from its investments in WeWork as well as in Uber after its disappointing IPO earlier this year.

Although investors have seemed excited about many names debuting or hoping to debut this year, Barron's reports that, on average, 2019 IPOs have fallen over 30% from their summer highs. Uber Technologies Inc. UBER, Lyft Inc LYFT, Pinterest Inc PINS, Beyond Meat Inc BYND, and even Peloton all peaked quickly and fell. Beyond Meat announced major deals with McDonald's Corp MCD last week and Marriott yesterday. However, neither could send the stock soaring again and ticker BYND fell over 2 percent yesterday. Before investing hard-earned money into an IPO, investors should start asking questions about valuation. None of the recent high-profile IPOs are profitable, or have a clear-cut path to profitability. If the underlying fundamentals aren't attractive, why should the buzz of being new and shiny on the market save the price?  

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

Photo courtesy of WeWork.