The Fourth of July is a great day for Americans. We celebrate our independence by going to the beach or enjoying a barbeque in the backyard with family and friends. Then we go to see fireworks at the end of the day. Firecrackers come with some great names and can be surprisingly pricey. The Wickedly Awesome 115 shot retails for $199.99, while the Swashbuckler 72-shot is $149.99, according to Fireworks.com. So perhaps it should be no surprise that the US fireworks industry had $1.2 billion in revenue last year, according to the American Pyrotechnics Association, or Americanpyro.com—we kid you not.
In our business, there have been some impressive fireworks in the IPO market so far this year. The Renaissance IPO index has returned 20.5% ytd through June 30, surpassing the S&P 500’s 8.2% return over the same period. Likewise, the average IPO gained 11% in Q2, compared to the S&P 500’s 2.3% return. But it’s the top performing IPOs priced in 2017 that have really been on fire, in some cases returning north of 60%.
Let’s take a look at what’s been heating up the IPO market so far this year.
(1) Healthy returns. In the first half of 2017, there were 77 IPOs raising $20.5 billion, the best result in the market since 2015, Renaissance Capital reports. With the year only halfway done, the IPO market has raised more than was raised in all of 2016.
The largest number of IPOs in the first half were done in the Health Care sector, which saw 18 deals, according to Renaissance. The sector was also home to the top performing IPO, BeyondSpring, which enjoyed a 141.8% return since its March offering through July 3. The biotech company, which generates no revenue, is testing drugs that it hopes will reduce infection in chemotherapy patients and will treat certain lung cancers. Other Health Care names among the top 10 best performing IPOs priced this year through July 3 are AnaptysBio, up 66.7%, Biohaven Pharmaceutical Holding, up 53.0% and Athenex, up 51.4%, according to IPOScoop.com. The recent upturn in the S&P 500 Biotechnology stock price index suggests that investors are looking for healthy returns from this sector again.
But the Health Care sector also housed a number of the IPO market’s biggest clunkers. Notably, Zymeworks, a biotech company, is down 36.3% from its April IPO and ObsEva S.A., a biotech company developing drugs to increase women’s reproductivity, has lost 50.1% since its January offering.
(2) Home sweet home. Benefitting from the boom in home purchases and renovation, the IPO of Floor & Décor Holdings has gained 82.5% since its April IPO, making it the second best performer of the IPOs priced this year. The company’s “same-store sales have grown by double-digit percentages for eight consecutive years, fueling investor appetite for its initial public offering…” a 5/3 WSJ article reported. The company has 72 locations, but would like to grow to 400 stores by increasing its store base by about 20% a year.
Another consumer goods company, Canada Goose Holdings, was the fourth best performing IPO priced this year. Since its March IPO, shares of the maker of very pricey winter coats have gained 54.8%. Another sign that times are good: Canada Goose returned to the well last Tuesday, selling $259.4 million of shares that were owned by investors in and managers of the company.
(3) Snap, crackle, pop. The Tech sector had the largest dollar-volume of deals in the first half, $5.6 billion, according to the Renaissance report. The tally was boosted by the year’s largest IPO, the $3.4 billion deal from Snap. However bigger doesn’t necessarily mean better. Snap shares have risen only 3.5% since its March IPO. Shares have come under pressure as Facebook has become increasingly competitive in the same space through its Instagram division.
Tech companies developing software to sell to corporations have fared better in the IPO market this year. Shares of Appian, which makes software for developing enterprise applications, are up 47.6% from its May IPO. Shares of MuleSoft, which sells companies software to integrate their applications, have gained 47.2% since a March offering. And SMART Global Holdings, a semiconductor company, has shares that climbed 42.8% just since its May 24th IPO.
This year’s second largest IPO has fared a bit better than the year’s largest offering. Altice USA’s $1.9 billion IPO has gained 6.3% since June 22 offering. A subsidiary of the Netherland’s-based Altice NV, the US company was formed by last year’s merger of Cablevision Systems and Suddenlink Communications.
(4) No energy. With the price of Brent down 13% ytd, it’s not surprising that IPOs in the Energy sector have had a tough time. Shares of Antero Midstream GP, the general partner of Antero Midstream, which owns assets like gathering pipelines and compressor stations, are down 6.8% since its May IPO. The IPO of Select Energy Services, which provides water solutions to US frackers, has dropped 13.4%, and the January IPO of Keane Group, which provides well completion services to fracking companies, fell 14.3%.
(5) Up and down. The Fed’s tally of new nonfinancial corporate equity issuance, which includes initial and secondary stock offerings, has also had a solid rebound, with companies raising $43.1 in the first five months of this year, compared to the $32.4 raised last year over the same period. Activity is slowly climbing back to the elevated levels enjoyed in 2014 and 2015, before the volume of stock offerings dropped sharply last year (Fig. 1).
Despite the elevated IPO and secondary issuance, outstanding equities continue to shrink thanks to share buyback activities. Nonfinancial corporate equities outstanding have shrunk by $550 billion over the past four quarters through Q1-2017 (Fig. 2).
Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.
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