If you’re looking for hot growth stocks, initial public offerings (IPOs) are a great place to start your search. These freshly minted public companies tend to make a splash in the market with big growth expectations and high price tags to match. Although not every IPO stock will be a winner, some of the most valuable companies in the world, such as Amazon (AMZN 1.29%) and Apple (AAPL 0.59%), were once initial public offerings, and have turned early investors into millionaires.
What is an IPO?
Recent IPOs
Recent IPOs
After a boom in IPOs during the pandemic, the market went ice-cold in 2022 as tech stocks plunged and interest rates soared.
However, as the Nasdaq has bounced back in 2023, the IPO market has showed signs of life once again with several new issues debuting in September and beyond.
1. Reddit
After a long wait, Reddit (NASDAQ:RDDT) finally went public in March 2024. The social media stock has been operating for almost 20 years, but it still isn't profitable.
Nonetheless, the stock soared on its debut as the company positioned itself as an AI beneficiary and its content is starting to be used for training data by companies like OpenAI.
Reddit is a unique social media company, and its value for training data makes sense, but its historical lack of profits shows the company will need to deliver on its growth plan, which includes advertising revenue, artificial intelligence (AI)-related licensing revenue, and future businesses like e-commerce to deliver gains for investors.
2. Instacart
Grocery delivery specialist Instacart (CART -7.4%) had been mulling an IPO for years before it finally pulled the trigger on its debut in September 2023.
Instacart's business took off during the pandemic. It was a natural fit with the stay-at-home period when Americans were reluctant to visit grocery stores.
Although you might guess that the business has receded since then -- like a number of e-commerce winners -- Instacart has continued to grow, building an impressive advertising business as well.
Its gross transaction value reached $30.3 billion in 2022, up 5% from 2022, and total revenue jumped 19% to $3.04 billion. Instacart is also profitable on the basis of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) with $641 million in EBITDA.
The addressable market in grocery is massive at roughly $1 trillion, and Instacart is the leading e-commerce platform for supermarkets. If the company executes on its growth plan, the stock has a lot of room to run higher.
3. Birkenstock
A 249-year-old sandal brand isn't your typical IPO, but Birkenstock (BIRK 2.14%) broke the mold when it went public in September.
Birkenstock might be a timeless brand, but the company has changed a lot in the last 10 years. The family that owns the company brought in professional management, which launched the Birkenstock.com website, opened company-owned stores, and took control of its distribution network, driving strong revenue growth and margin expansion. That's enabled it to raise its average selling prices, and it's introduced new models, expanding its product selection.
The company also received an investment from the family investment arm of LVMH (LVMHF 2.2%) founder Bernard Arnault, helping to forge a partnership with a luxury conglomerate.
Recent results have been strong. In 2023, revenue rose 29% to 1.49 billion euros, and it reported an adjusted EBITDA margin of 32.4%.
A number of footwear stocks have come before Birkenstock and delivered strong returns. With its well-known brand and capable management team, Birkenstock could be the next winner from the footwear industry.
4. Arm Holdings
Semiconductor stocks have attracted a lot of attention this year as demand for artificial intelligence capabilities has driven a surge in stocks like Nvidia (NVDA 3.65%), so it's not surprising that Arm Holdings (ARM 3.18%) took advantage of that moment to go public.
Arm is known for making central processing units (CPUs), but it's expanded into graphics processing units (GPUs), and it also makes microprocessors.
Arm uses a special kind of architecture called RISC (reduced instruction set computer), which makes it easier for computers to receive the code that makes them run.
Like other chip stocks, Arm has struggled with the slowdown in the industry since the pandemic boom, but it's seeing demand for its technology ramp up in the AI boom since its chips help conserve power, making them valuable for running AI applications.
IPOs to watch
IPO stocks to watch in 2024
1. Stripe
As the most valuable privately held tech start-up in the U.S., digital payments company Stripe may be the most anticipated IPO out there. While the company has not announced plans to go public, Reuters reported that Stripe had taken its first step toward a market debut, tapping a law firm to guide it through the process. The wire service also said the company was planning on a direct listing instead of a traditional IPO since it doesn't need to raise new funds.
Stripe, which provides cloud software that allows businesses to seamlessly process payments, took a valuation cut from $95 billion to $50 billion due to the crash in tech stocks, and was valued at $65 billion in a stock-sale deal that will allow employees to cash out their stock. Still, management continues to say that it aims to go public eventually, and it plans to make a decision on an IPO by the end of the year.
2. Shein
Shein could be the biggest IPO of 2024. The Chinese discount e-commerce site known for cheap clothes and similar merchandise filed confidentially to go public in November 2023.
While it hasn't revealed its financials yet, the company could reportedly be valued at $90 billion. Temu, a similar Chinese discount e-commerce site, has also grown rapidly, showing strong demand for cheap online merchandise and alternatives to Amazon.
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FAQs
IPOs: Frequently asked questions
What is an IPO in stocks?
An IPO stands for initial public offering. It refers to a company making its shares available for public ownership and trading. When the stock IPOs, it lists on a stock exchange and begins trading.
Is it a good idea to buy IPO stocks?
IPO stocks tend to be riskier than the broad stock market since these are new issues that investors are still evaluating, and the stocks are searching for their equilibrium point.
IPOs often underperform the market due to the euphoria that surrounds them when they go public, but some IPO stocks go on to be big winners.
What's the best IPO to buy now?
One of the more intriguing IPOs on the market today is Arm, the chipmaker. Given the rising demand for AI chips, ARM could find itself in a fortuitous position in the coming months if demand for chips continues to rise.
How do I invest in IPO stocks?
Investing in IPOs once they've started trading is just like buying any other stock. If you want to buy shares before they start trading, the best thing you can do is contact your brokerage and see if you can subscribe to the IPO allotment.
