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2 Blowout IPOs Have the Nasdaq Smiling Thursday

By Dan Caplinger - Jan 14, 2021 at 3:55PM

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When an exchange gets top listings, there's reason to celebrate.

Many investors just think of the Nasdaq as a market benchmark, as the Nasdaq Composite (^IXIC 0.00%) is one of the most popular indexes on Wall Street. That index gained ground on Thursday afternoon, climbing about a third of a percent as of 2:30 p.m. EST.

But the Nasdaq is also a stock exchange, and there's always friendly competition between it and the New York Stock Exchange to get the best new companies to list their shares. When hot IPOs go with one exchange over the other, it's a nice reputational win. On Thursday, the tally was solidly in the Nasdaq's favor, with both Poshmark (POSH 7.82%) and Petco Health & Wellness (WOOF 4.37%) opting for it over the NYSE and jumping out to big first-day gains.

Two people smiling, with a small yard in the background.

Image source: Getty Images.

Poshmark makes a stylish entrance

Poshmark stock soared on Thursday afternoon, climbing above the $100-per-share level. That was up more than 140% from where its IPO priced, reflecting the confidence that investors have in the online fashion player.

Poshmark had actually hoped to go public more than a year ago. However, many of the company's industry peers took advantage of beneficial conditions in mid-2019 to come public, and the window for a favorable reception closed, forcing Poshmark to wait.

The delay was worth it for early investors. Poshmark initially set a range of $35 to $39 per share, but demand was strong enough that underwriters set the final price at $42. The first trade happened at more than double that level, and shares held their ground throughout most of the day.

E-commerce has been extremely hot in 2020 and 2021, and so the idea of a peer-to-peer used clothing and accessories marketplace apparently appeals to investors. Whether Poshmark will put traditional thrift stores out of business remains to be seen, but it's hard to say that first-day IPO investors are getting a huge bargain on Poshmark shares.

Petco is the cat's meow

Elsewhere on the IPO scene, Petco Health & Wellness jumped 64% from its IPO price. This wasn't the first time that the pet products retailer has been available on the public stock market, but its reception showed just how hungry investors are for stocks in attractive areas of the market.

Petco had originally expected its IPO to go out in a range between $14 and $17 per share. Instead, it priced the offering at $18, and investors had a huge appetite. The first trade went out at $26 per share, and the stock continued to climb from there to move above $30 briefly before falling back a bit.

The COVID-19 pandemic has dramatically increased interest in pets, and that's created a huge market boost for Petco and its rivals. Pet e-commerce specialist Chewy (CHWY 5.58%) soared in 2020, and industry peer PetMed Express (PETS -0.09%) also enjoyed solid gains.

Private equity investors had considered doing a sale of the entire business rather than offering shares in an IPO, but they rejected that idea late last year. Judging from today's performance, that change of heart appears to have been a smart move to capitalize on the popularity of pets.

Consider the real IPO winners

It's easy to see the share prices rise on IPOs and think that it's a big win for the companies selling stock. Yet there are a host of businesses that benefit from IPO hype, and many of them don't have any real vested interest in the long-term future of the company that has gone public.

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Stocks Mentioned

Poshmark, Inc. Stock Quote
Poshmark, Inc.
POSH
$11.31 (7.82%) $0.82
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,434.74 (0.00%) $0.00
PetMed Express, Inc. Stock Quote
PetMed Express, Inc.
PETS
$21.58 (-0.09%) $0.02
Chewy, Inc. Stock Quote
Chewy, Inc.
CHWY
$25.54 (5.58%) $1.35
Petco Health and Wellness Company Stock Quote
Petco Health and Wellness Company
WOOF
$16.01 (4.37%) $0.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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