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Has IPO Flood Reached Warning Levels Yet?

  • Written by Syndicated Publisher No Comments Comments
    June 4, 2014

    It’s no secret that just prior to previous significant market tops, not only were corporate insiders selling heavily, but founders of start-ups and their venture capital backers were rushing to raise cash via initial public offerings (IPO’s) before the market could top out on them.

    We know that insiders have been selling heavily, at a near record pace often seen at previous significant tops.

    On IPO’s, Reuters reported at the end of the first quarter that venture-backed companies offered 36 IPO’s in the first quarter, more than any quarter in at least five years.

    Dealogic reported yesterday that as of the end of May the number stands at 55 deals year-to date. By comparison, there were only 19 deals at this point in 2013, 12 deals at this point in 2007.

    So IPO’s are running at a very high pace, but not close to the 144 IPO’s at this point in 2000, as the high-tech bubble was about to burst.

    However, in this cycle there has been more of a tendency for venture-backed companies to sell out to larger companies, rather than risk the IPO route. And year to date there have been 105 venture-backed start-ups acquired by others. So the total, 55 IPO’s and 105 acquisitions of start-ups, 160, is higher than the number of IPO’s at this point in 2000 (although I do not have data on how many went the acquisition route in 2000).

    Perhaps of more concern is the percentage of IPO’s that have no earnings, and are being hyped based solely on their potential to some day figure out a way to produce earnings. In the dotcom bubble in 1999, start-ups and venture capital companies were concerned about the bubble and became frantic to get the IPO’s out without waiting until the companies were profitable.

    And according to the latest data, the percentage of IPO’s with negative earnings (operating at a loss) has soared to 83%, the highest level since the percentage reached 84% in February, 2000, just a month or so before that tech bubble burst.

    Breakout or fake-out?

    It’s still a viable question, even with the S&P 500’s additional breakout gain this week.

    The Dow broke out too, but not to a new high.

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    And is that a potential head and shoulders top on the Nasdaq?

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    To read my weekend newspaper column click here:  Bull Market Continues, But Will Cash Be Summertime King-

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    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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