If you’re looking for hot growth stocks, 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 0.03%) and Apple (AAPL -1.86%), were once IPOs, or initial public offerings, and have turned early investors into millionaires.
What is an IPO?
IPOs to watch
IPO stocks to watch in 2024
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.
IPO
Among the recent IPOs to watch are the following:
1. Instacart
Grocery delivery specialist Instacart (CART -0.67%) had been mulling an IPO for years before it finally pulled the trigger on the 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 $29 billion in 2022, up 16% from 2021, and total revenue jumped 39% to $2.55 billion. Instacart is also profitable on the basis of adjusted earnings before interest, taxes, depreciation, and amortization (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.
2. Birkenstock
A 249-year-old sandal brand isn't your typical IPO, but Birkenstock (BIRK -0.43%) 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 and expanded its product selection.
The company also received an investment from the family investment arm of LVMH (LVMHF -0.06%) founder Bernard Arnault, helping to forge a partnership with a luxury conglomerate.
Recent results have been strong. In 2022, revenue rose 29% to $1.24 billion, and it reported an adjusted EBITDA margin of 35%.
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.
3. 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 1.86%), so it's not surprising that Arm Holdings (ARM 0.7%) 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, with a supply glut affecting demand and pricing. Consequently, revenue and profits fell slightly in its most recent fiscal year, but the company should return to growth soon. If it can capitalize on the demand for AI chips, its profits could soar.
Upcoming IPOs
Upcoming IPOs: Companies going public in 2023
Here are some other big-name companies with plans to go public in 2023 or 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. Given that valuation, it’s not surprising that a listing would be imminent since early investors and insiders need the company to go public to cash out their holdings. Management has said it will make a decision on an IPO by the end of the year.
2. Reddit
Social media platform Reddit has been eyeing an IPO since at least 2021, but the crash in tech stocks spoiled its earlier ambitions.
However, the company is rumored to be going public, possibly before the end of 2023.
The Information reported back in February that Reddit was aiming to go public before the end of the year. According to media reports, it had been targeting a valuation of $15 billion, although it's unclear if Wall Street would value it that highly since social media stocks have generally fallen over the last couple of years. The company was valued at $10 billion at its last funding round in August 2021.
FAQs
Frequently asked questions
What is an IPO in stocks?
An IPO stands for initial public offering. It refers to a company's making its shares 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.
