What happened

Allbirds (NASDAQ:BIRD), which pegs itself as a global lifestyle brand, has basically fallen all week long, dropping as much as 20% according to data from S&P Global Market Intelligence. Just before the opening bell on Friday, Nov. 12, the stock was off by roughly 18% for the week so far. The big news here, however, actually happened last week.

So what

On Nov. 3 Allbirds held its initial public offering (IPO). The shares of the shoe and clothing maker, which focuses on using natural materials in its products, were priced at $15. It sold 23,221,152 shares in total, but there were a number of different pieces under that top-level figure. Allbirds sold 16,850,799 shares directly and the IPO underwriters sold an additional 3,028,845 shares. In addition to that, insiders sold 6,370,353 of their shares, the proceeds from which went to these shareholders and not to Allbirds. The stock was listed on the Nasdaq market.

Two people looking at a computer with a stock graph on the screen.

Image source: Getty Images.

That's the basic information about what happened. But, as with many IPOs, investors were excited by the idea of being able to buy Allbirds so they bid the stock up sharply on its first day of trading. The stock ended the day at more than $28.50 a share, nearly doubling the $15 IPO price. That's not exactly an uncommon experience for a hotly anticipated new issue, but it does set a high bar. Investors have basically been selling the stock ever since that huge initial advance, letting share prices drift lower.

When you dig a little into the company's IPO prospectus, you can see why some investors might be a little hesitant here. Although Allbirds has been growing quickly, expanding its revenues at a compound annual growth rate of 31.9% between 2018 and 2020, it recorded a net loss of $14.5 million in 2019 and $25.9 million in 2020. Granted management is focused on growing the brand, noting that the store count increased from 3 in 2018 to 22 in 2020. And growth does require investment. But when you step back and examine the story a little more critically, it appears that Allbirds is basically a hot, but unprofitable, retailer that's come public with a splash. It's not clear yet that the company can live up to the hype surrounding its brand, financially speaking.

Now what

IPOs are usually best left to more aggressive investors, even though it can be pretty tempting to jump aboard when you see big first-day pops like the one Allbirds experienced. The subsequent price declines here, however, provide a warning for more conservative types. Until Allbirds has a longer, and perhaps profitable, track record beyond it as a public company, most investors should probably just watch from the sidelines.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.