One in four stocks of companies that went public in 2020 or 2021 is now trading below $2/share. Many of these companies’ shares may never recover, according to Corrie Driebusch at The Wall Street Journal. Busch writes:
Hundreds of companies that went public when the market for initial public offerings was booming have suffered such sharp reversals that they now face a stark reality: Their shares may never recover.
More than one in four of the nearly 600 companies that went public via a traditional IPO in 2020 or 2021—including oat-milk maker Oatly Group OTLY -1.10%decrease; red down pointing triangle AB and online lender loanDepot Inc.—traded LDI 0.31%increase; green up pointing triangle at less than $2 a share as of Friday’s market close, according to Dealogic data. Many companies that went public in the surge of mergers involving SPACs, or special-purpose acquisition companies, also are faring poorly.
When a stock trades below $1 on average for 30 days or other requirements aren’t met, the company is issued a warning by its stock exchange. It then has 180 days to bring the stock price back up and if it fails to do so is typically delisted or moved to an exchange with lower listing standards. That is bound to send an alarming signal to investors, customers and employees—especially when it comes so soon after an IPO—and sometimes presages a forced sale or other drastic action.
It is the latest issue plaguing the U.S. IPO market, which has been bedeviled by rising interest rates and sinking share prices and is on pace for its worst year in at least two decades as measured by money raised in traditional listings, according to Dealogic. Seeing so many newly public companies in danger of getting kicked off exchanges is likely to give pause to those contemplating listings and IPO investors alike.
Indeed, corporate executives and bankers and lawyers who work on IPOs say they aren’t holding their breath for a recovery in the market any time soon.
Many companies that went public in 2020 and 2021 were unprofitable and were valued based on big multiples of expected revenue. With a possible recession looming, those expectations have been reduced and investors are less willing to award big revenue multiples, crushing many of the companies’ valuations and limiting their options.
They can cut costs or raise money through so-called structured private funding rounds, as many are doing. Some are also considering reverse stock splits to raise their floundering share prices, some bankers and lawyers say, though such moves carry risks of their own and don’t always work.
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