The initial public offering (IPO) market is in rally mode in April, as interest rates moderate and stock valuations bounce back for publicly traded companies.
Last year, significant growth indicators for IPOs began to emerge, as the S&P 500 benchmark index rose 24.2%. Also, the MSCI World Index was up 25.7% over the past year and up 9% year to date as of the end of March.
IPO valuations have risen as a result. Take Birkenstock Holding PLC (ticker: BIRK), the Germany-based shoe manufacturer. Its recent IPO reeled in a robust $8.6 billion market valuation when it went public on Oct. 11. Or how about Arm Holdings PLC (ARM), which went public on Sept. 14? Its valuation rose to nearly $60 billion at its open on the Nasdaq.
The biggest factors impacting the IPO market right now are high interest rates and the performance of IPOs in recent years.
“Upon IPO, many companies have had limited profits, if any,” says Jeremy Bohne, founder at Paceline Wealth Management in Boston. “That means almost the entire value of the company is based on huge profits expected to arrive long into the future. Valuations of highly priced stocks like these are extraordinarily sensitive to changes in interest rates, which are a key valuation input.”
