Chart of the Week: What 650 IPOs reveal about long-term performance
Our data shows buying into the IPO hype can be costly.
The week’s insights come from equity strategist Lochlan Halloway‘s latest analysis of the IPO market in Australia.
A Decade of Australian IPOs
In the most recent Your Money Weekly, Lochlan Halloway highlights that short-term gains in IPO’s don’t typically equal long-term investment success. Lochlan compares SpaceX to Guzman y Gomez’s 2024 IPO, which also started strongly and drew criticism for cautious valuation. Yet two years later, GYG’s growth has slowed, its US expansion ended abruptly and shares have fallen below the offer price, underperforming the broader market.
The key point is that IPOs are often designed to generate early excitement. Factors like strong narratives, founder appeal, scarcity and retail demand can drive sharp initial gains. Data from 650 ASX IPOs shows first-day gains are common, with a median rise of 5% and average of 15%.
However, performance typically deteriorates. By 30 days returns on ASX IPO’s typically flatten and by six months investors face 10% losses on average. Finally, by the one year mark average losses approach 20%. While IPOs can deliver quick wins, they frequently underperform over time. Investors should focus on long-term value rather than short-term momentum.
The big picture
The broader takeaway isn’t to avoid IPOs altogether, but to be more selective and patient in how you approach them. While standout IPO performers do exist, based on this data they are more so the exception rather than the rule.
Lochlan notes that investors don’t need to buy at the IPO to benefit from a company’s long term potential. In fact, history suggests better entry points often emerge after the initial excitement fades, even for high quality businesses. Early pricing is frequently influenced by hype rather than fundamentals.
This is particularly relevant for high profile floats like SpaceX, where market enthusiasm can push valuations well beyond reasonable assumptions. A disciplined, valuation driven approach may mean missing short term gains. Ultimately, successful investing relies less on momentum and more on aligning price with long term underlying value.
The Your Money Weekly is available to Morningstar Investor subscribers and trialists.
