IPO stocks are usually in high demand. Buying early is your best chance of making the highest gains on an investment, and that often drives up a price quickly.
But there are two points to consider with this approach. One is that retail investors rarely get in on the IPO price, which typically goes to commercial investors. By the time most retail investors have the opportunity to buy, the price is often much higher, even doubled from the IPO price. IPO buying frenzy eventually settles down, bringing the price and any gains with it. If you buy into the hype and invest at the high, you'll lose any gains in the near term.
The other point is that investors will never be able to time the market, and if they try to, they're bound to lose. Prices fluctuate according to various factors, usually uncontrollable. It only hurts to try to get in at the lowest price point, even though you might sometimes hit the target. Instead, your best chance of success is to buy stock in companies with the potential for high growth. Depending on your appetite for risk, you should look out for a low entry point.
Two recent IPOs that have seen their share of volatility are Airbnb (ABNB -5.37%) and Upstart Holdings (UPST -8.58%). Airbnb stock is trading well below its 52-week high, and Upstart stock is trading close to its high. But both are fantastic options for long-term high growth.
The travel revolution
Using Airbnb's platform to find a vacation rental saves searchers time, but even more, it gives vacation-seekers peace of mind through accountability and guidelines. To that end, the company recently upgraded its user agreements to provide a better experience for both hosts and guests. CEO Brian Chesky said "The lines between travel, living and working are blurring and we are upgrading our service to make it easier for people to integrate travel into their lives."
That line-blurring has been a great tailwind for Airbnb, which was battered by COVID-19. After serious sales drops in 2020, the 2021 first quarter showed a huge comeback. While travel is still limited, the company is benefiting from domestic travel and longer stays, some of which wouldn't be possible in the traditional travel sector. Airbnb's revenue increased 5% year over year in the first quarter, as opposed to, for example, Marriott International's 51% revenue decrease in the same period and Hilton's even bigger drop. Many hotels were closed for that entire period, but Airbnb locations were mostly open.
There will always be a place for hotels, but there are so many advantages that Airbnb has over traditional travel, and those are what will keep propelling the company forward. One is its rentals in far-flung locations that most hotels don't reach. Another is its wider range of prices. Still another is the ability to recruit new hosts and expand its room count much faster than a hotel company can build new hotels. And there are more.
In other words, there's so much potential. Airbnb stock is about flat from its first-day closing price, despite it's first-quarter recovery, making this an optimal time for any type of investor to purchase shares.
The artificial intelligence revolution
Upstart stock had a slow start when it debuted on the stock market in December 2020, but it has since shot up nearly 400%. That's due to its powerful, AI-driven credit evaluation model that can change the bank-lending business.
The company matches individual risks to outcomes more effectively than standard credit reporting through machine learning. This allows banks to approve more loan applications, putting more money in their coffers, while reducing risk and saving money. No wonder more banks are joining the client count and sales are soaring.
In the first quarter, sales increased 90% year over year, and loan originations increased 102%. Even better, the company became much more profitable, with net income increasing from $1.5 million to $10 million. After the report, Upstart raised its revenue guidance for the year by $100 million to $600 million, up from $233 million in 2020.
Upstart's stock price skyrocketed in March after it announced it was acquiring Prodigy, which develops software for auto sales and financing. The auto industry is a huge market, and Upstart's entry into this unexplored area opens a lot more doors.
At this point, Upstart shares are pricey, trading at nearly 142 forward one-year earnings. But investors can expect a lot from the company, and it might deserve your dollars.