Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Jeremy Glaser and James Krapfel, CFA | 10-29-2013 02:00 PM

Individual Investors: Handle IPOs With Care

In a possibly frothy market, investors looking to ride an IPO need to be very cautious and focus on the fundamentals, says Morningstar's Jim Krapfel.

Stay tuned this week for's coverage of Twitter's IPO.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm here today with Morningstar equity analyst Jim Krapfel to looks at the health of the IPO market and also how investors should think about initial public offerings, like Twitter.

Jim, thanks for joining me.

Jim Krapfel: Thanks for having me, Jeremy.

Glaser: All the attention on Twitter's IPO has really brought the IPO market into many investors' spotlights recently. Can you tell us a little bit about the health of the market right now, and how that compares to what it's looked like over the last few years?

Krapfel: I'd say the IPO market right now is very healthy. We're seeing lot of offerings this year, much more than last year. So far this year, we've seen 170 offerings and that compares to 131 for all of 2012, which had increased over prior years, too. Year-to-date, offerings are on pace with what we'd seen from 2004 to 2007 on average, which were fairly high levels, but certainly not at the levels we saw in the late '90s, when all these tech companies were going public.

Glaser: What's driving these companies coming to market? Is it private equity exits? Is it that folks just need to raise capital? What's driving this?

Krapfel: I think really it's that stock market valuations have been very strong. The market overall is up anywhere from 30% to 35%, and companies like to go public when valuations are strong. So they're seeing their peers in the same industry being priced at very high valuations, and then you're seeing other companies go public at pretty strong levels, too. So, that means they can raise more proceeds than they could in a weaker market. So, really it's been driven by the strong equity market, which is also being boosted by low-interest-rate environment.

Certainly, we're seeing some private-equity-backed companies go public at increasing rates. Private-equity investors tend to be fairly smart. They like to time their exits very carefully. When the stock market falls 10%-15%, they're quick to pull any offerings, and then come back to the market when valuations are stronger [like this year]. …

Glaser: There have been some recent legislative changes, things like the Jobs Act, to try to make it easier to come to market. Do you think that's had a big impact, or is it mostly those valuation factors you talked about?

Read Full Transcript

{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article