What’s more exhilarating than skydiving in a tri-level freefly formation with friends over the Arizona desert? Investing in the newly-listed company that makes it possible to capture the moment on camera and share it with the world. Initial public offerings can be exciting for investors as the first sale of stock by a private company to the public can bring great rewards to thrill seekers. However, most people should probably avoid IPO euphoria, or at least consider a more sane approach.
GoPro (NASDAQ:GPRO) made a picture-perfect debut last month. The maker behind the world’s most versatile camera priced shares at $24, the upper end of its estimated range of $21 to $24. GoPro raised more than $427 million in the deal and became the biggest consumer electronics company to go public in over twenty years. The IPO price also placed a market value of about $3 billion on GoPro.
Shares of GoPro surged 31 percent on their first trading day on the Nasdaq. That’s an impressive move, but shares climbed another 56 percent in the following three days. These kinds of gains can make it feel like investing in newly-listed stocks is a sure bet, but shares plunged 14 percent on their fifth day of trading. In reality, no one truly knows if a stock is appropriately priced, especially when it has no trading history. Making matters worse, the wild swings seen in IPOs can severely damage investor psychology and bleed money from portfolios.