Recent IPO Market a Mixed Bag Among “Choosy” Investors

We know that investors have shown lots of love for tech IPOs in recent months, with trading debuts from LinkedIn (NYSE:LNKD), Pandora (NYSE:P), Zillow (NASDAQ:Z), Yandex (NASDAQ:YNDX), and others that sent share prices through the roof on opening days. However, demand in IPOs outside the tech sector (NYSE:XLK) is looking much more scattered, say experts. “The IPO market sees two different types of investors,” said Josef Schuster, founder of IPO investment firm IPOX Schuster LLC. “First, the older, institutional investor that looks at the balance sheet and growth prospects of the company. Second, there is participation from indiscriminate traders who just want to fill up the books and end up jacking the stock.”

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Dunkin’ Brands (NASDAQ:DNKN) hit the Nasdaq (NASDAQ:NDAQ) Wednesday with quite a pop, opening at $25, 33% above its IPO price, and gaining another 12% in the past two days. Specialty Tea maker Teavana Holdings (NYSE:TEA) also saw a nice return on its debut this week, pricing well above its SEC listed range and opening even higher. Other IPOs fared worse this week, even in spite of backing by prestigious private equity firms such as Carlyle Group. Wesco Aircraft Holdings (WAIR) opened below its target price range and has stagnated in two days of public trading. Chef’s Warehouse Holdings also priced in its listed range and has failed to garner the demand of more popular companies.

“If there is a lot of momentum, there’s talk on the television about these stocks opening well, then investors are paying attention,” David Menlow, president of IPOfinancial.com, said. “It’s herd mentality. A lot of people are looking over their shoulders to see what everybody else is doing.” The momentum will certainly continue into the second half of 2011, with high profile tech IPOs expected from Zynga, Groupon, Living Social (NASDAQ:AMZN), and others in coming months. The companies are counting on the current exuberance over web 2.0 stocks to drive impressive returns in their public debuts.

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