Whew, that was an intense week of IPO trading: with a dramatic disparity between the high fliers and the dumpster fire losers. However, this was a great opportunity for taking notes and learning lessons: and if you followed the IPO Warrior battle plan, you emerged from the battlefield victorious.
Before we jump in, just a reminder to catch me on Benzinga Pre-Market Prep on Monday at 9:00 AM EST to review last week’s winning trades and preview the IPO schedule for the week ahead.
And if I helped you make some money last week, or you feel like supporting my research and time spent bringing you this information each week, please consider making a contribution to my whiskey fund:
Ok, Let’s review last week’s IPO Trades:
a.k.a. Brands (AKA) kicked off the calendar with what initially appeared to be a weak start: pricing below range and debuting below the IPO price of $11.00 with an opening trade of $9.72. Those who waited to pick off the opening dip, or entered with a below-the-indication-price limit order, would have been pleased to see AKA regroup and go on a march up to $10.88. This has been a relatively predictable setup for companies that price below range and debut below IPO, especially when the underlying financials are actually solid and the float is low enough to avoid saturating demand with too many sellers. There wasn’t much upside beyond the initial run up, but these plays are best executed for quick, nominal profits: there just isn’t usually going to be much demand beyond the IPO price itself.
Toast (TOST) raised it’s price range at least once prior to the IPO pricing, and then posted an IPO price above range at $40… talking heads and financial experts were all raving about the company but warning of the valuation: then the pre-debut indication price showed $60 and warning signs should have been going off in any IPO trader’s head. When it then climbed to $65 before opening, the only rational play was to try and undercut the debut premioum, but even that was a dangerous move. TOST opened at $65.37 and basically tanked all day. However, it was merciful enough to offer those who got in or averaged their position down below $65 a chance to cut losses or even take small gains on rebound to $64.94 at the open of Day 2. Remember, a popular stock will get an overnight media pump and a fresh wave of buyers will jump in on the morning of Day 2: it’s a great time to lock in profits if you’ve held a winner overnight, and an ideal time to bail on a position if you’ve been bag holding on Day 1. I’d say it works out 8/10 times, though there are some instances, as we saw later in the week, where averaging down and holding through Day 2 won’t save you.
Freshworks (FRSH) brought us our first clear winner of the week, with a highly predictable win setup that opened up with a reasonable debut premium of $43.40 and, after a few minutes of stabilizing around the debut price, ran up to an initial peak of $47.50 to provide an easy initial exit point to lock in profits on a partial exit. Holding throughout the day offered a peak at $48.75 in the End-of-Day runup prior to the bell, and Day 2 opened with a run up as high as $49.25. This is a solid company that is clearly appreciated by the market, and it had a strong debut in a week that was a bit tentative going into Wednesday’s open… so the fact that it held on and performed as well as it did gives me reason to think it could climb further in the coming weeks once the market warms up a bit, just like we saw in some of the IPOs that debuted in the cold market in July that then ran up in August (S, DUOL, and anothers).
Thorne Healtech (THRN) had a pretty lousy IPO altogether: downsized offering, priced below range, and then debuted below IPO. So you would be forgiven if you thought it couldn’t go down much further from there… you also would have likely been punished for buying the debut. THRN debuted at $8.50 and proceeded to drop to $7.80 before a short rebound to $8.50 that was quickly reversed to further lows that bottomed out to $7.50 going into the turn of Power Hour, before an end of day rally brought the price back as high as $8.15. I’m not sure why you would have played this one at all, but if you did (like me), you probably managed to salvage a win as long as you bottom fed the dips and sold on the peaks… Day 2 saw $8.50 again, so as long as you didn’t sell for a loss on Day 1, you likely didn’t lose money on this one. Still, kind of a lesson for me not to play IPOs simply out of boredom.
EngageSmart (ESMT) was an IPO I was highly interested in, at a certain price. When the pre-debut indication climbed from $31 to $37, I was out. I set a limit order at $35.05, but it didn’t fill in the opening minutes, as the debut trade clocked in at $37.87 and the share price quickly dropped throughout the day: a total loser that bottomed at $34.14 with just 30 minutes left in the market on Day 1, though a solid rally up to close at $36 was an encouraging sign to bag holders: debut buyers who had not averaged down were still in hot water, but those who had lowered their cost basis on the dips could comfortably exit without taking a loss. Day 2 got scarier still for bag holders, as the stock dropped down as low as $33.19 in the opening minutes. But ESMT was not to be counted out… staging a day-long rally up as high as $38.83, offering vindication for any traders who held on through the lows and offering a get-out-of-jail-free card to any bag holders who maintained their positions.
Sovos Brands (SOVO) was simply not a geat IPO to play: food brands have to be very popular to get a boost, and this one was over-priced at the debut price of $15, with no reason to think retail demand was going to push this one any higher. It debuted at $15 and dropped to a base of $13.50 in the early afternoon – a weak rally from there marked with a spike above $14 was all the relief this one could muster, and Day 2 offered no real relief. Though again, if you bought the debut, doubled down at the basline of $13.50, you would have had a very brief opportunity to get out at breakeven when it spiked to $14.48 at the turn of Power Hour. The strategy in this situation, which is not easy to get yourself to do, is to double down once the share price baselines, and leave a Limit Order to sell at your cost basis… the spikes are somewhat random or extreme into the close, so you’re not going to catch them with a stop loss or market order.
Sterling Check (STER) this one offered a profit, and though not a huge win opportunity, it was the kind of play that is not all that difficult to execute. STER debuted at $27.00 and helding the debut price for the opening minutes before embarking on a run up to a peak of $28.99. A trailing stop loss would have been the easiest way to play this one for a $1-1.50 profit, though another predictable approach would have been to tarket the $29.00 mark (+$2 off the debut) and put in a limit order at $28.85 to take quick.
Brilliant Earth Company (BRLT) turned out to be dark horse runner of the week, opening with a modest debut price of $13.00 and spiking up to an initial high of $17.20, rewarding early believers with a substantial win in the opening 10 minutes of trading. Those who held out for more, were given trophies of further gains with a peak at $18.18 at the height of the power hour run.
Argo Blockchain (ARBK) was an uplisting, which I don’t always watch, but given that the OTC ticker was trading up at $2.20 on the day of the IPO, and the IPO debuted at $15.01: the 10-for-1 conversion of OTC to IPO ADS should have been a clear indication that this one would rise off the debut price to close the nearly $7 differential. I didn’t realize this until after the fact, but the run up to $17.62 compelled me to go back to do some homework. When it then ran up as high as $19.33 on the opening of Day 2, I learned my lesson: watch out for uplistings that are priced well below the trading price of their corresponding OTC tickers, especially if they are for a company operating in a buzz-worthy space like bitcoin mining.
Clearwater Analytics (CWAN) was a fairly obvious play, given that their products serve clients who are savvy investors to begin with, so it stood to reason that there would be sufficient retail interest to give this one a boost. CWAN debuted at $23.84 and made a quick initial run up to $25.00 before falling down into a trough at $23.25. But the dip was brief, and CWAN quickly regained its footing and climbed up to a high of $26.75 for a nice win for those who played it. Unfortunately, ETrade had restricted CWAN on the debut, and was not accepting orders until it had already been trading for 12 minutes. I don’t chase, so I didn’t try to catch the dip, and in truth, was highly focused on what was the home run play of the week for me, and my focus paid off big time…
Cue Health (HLTH) gave us everything I look for in a killer IPO play: COVID-related buzz, social media hype, strong profit margins, a good story, and a low float…. and then it added to all of that with a modest IPO price and a debut price below that… I mean, it was everything I could ask for, and boy, did it deliver.
HLTH debuted at $16.75 and climbed right out of the gate to hit $19.00 before a slight pullback, and a run at $20.00 before losing steam. But after a short consolidation around $18.50, it ran back up to $20… held in the $19.50-$20.00 range, and broke out to a peak of $22.55. That was rich enough for me to exit my full position, but anyone who held on was given ample opportunity to take profits in the $20.00 range throughout the day, and who knows, maybe Day 2 will bring a further jump. Either way, I was happy to take a big win into the weekend, and hope you all were able to take profits on this one as well (if you follow me on Twitter or are in the Reddit Thread, I gave you ample notification of my high conviction in this trade.
For more analysis of last week’s trades and a preview of the IPO calendar for next week, please join me on Benzinga Pre-Market Prep on Monday at 9:00 AM EST:
NOTE: This is not financial advice, and I am not a financial advisor. This is purely for informational purposes only. I have or make take positions in the securities mentioned in this newsletter. Trade responsibly, and good luck in the markets.