Despite external pressures, 2020 has been a strong year for initial public offerings. That makes the performance of the worst IPOs of 2020 all the more disappointing.
Indeed, the novel coronavirus pandemic crushed the IPO market earlier in the year. The pandemic also opened the door for SPACs (special purpose acquisition companies) to offer an alternative route to the public markets. Notably, the SPAC process – in which a private company need only negotiate with a single merger partner to go public – offered more certainty and speed at a time when both were prized.
Despite that, we’ve seen enormous demand for IPOs, and particularly the best IPOs. Most recently, Airbnb (NASDAQ:ABNB) and DoorDash (NYSE:DASH) soared on their first day of trading, though DASH stock pulled back a bit of late. Before that, the likes of Lemonade (NYSE:LMND) and Snowflake (NYSE:SNOW) saw massive initial returns.
Clearly, investor demand for new issues is strong. Yet some IPOs have struggled, including these four. These aren’t necessarily the worst IPOs of 2020 by percentage terms, but for varying reasons these four newly public stocks are easily the most disappointing:
Worst IPOs of 2020: Casper Sleep (CSPR)
The Casper Sleep IPO struggled from the jump. The initial pricing range was cut sharply from an initial $17 to $19 down to $12 to $13 before settling at the low end of the revised range. A first-day pop of about 13% on Feb. 6 gave the stock some momentum, but CSPR stock then plunged with the broad market as the effects of the pandemic became clear.
The news hasn’t been much better since. CSPR stock did double off its March lows, but so did many small-cap stocks after the market’s collapse. Since mid-April, the stock has been stuck, and it still trades more than 40% below its lowered IPO price.
It might be tempting to attribute the weak trading to the pandemic, given Casper’s move into brick-and-mortar retail. But that excuse doesn’t seem to fly. While CSPR has struggled, rival Purple Innovation (NASDAQ:PRPL) soared, more than tripling year-to-date. There’s still hope for a Casper rally, but so far the company has underperformed in every conceivable sense.
Lemonade stock has almost quadrupled from its IPO price of $29. Given that rally, it’s a surprise that there are not just one, but two insurance stocks on the list of the worst IPOs of 2020.
To be fair, GoHealth isn’t an insurer itself. Rather, it runs a marketplace for Medicare plans. But investors clearly see Lemonade as a potential disruptor in offering insurance; GoHealth hasn’t received the same credit on the sales side of the industry.
GOCO stock in fact closed below its IPO price on its first day of trading, a relatively rare event in any market. A short-lived rally followed, but GOCO has continued to drift down. It now trades about one-third below its IPO price of $21.
Election results may not necessarily have helped, with some investors seeing Joe Biden’s win as a possible harbinger of changes in U.S. healthcare. It’s likely that modest controversy around rival eHealth (NASDAQ:EHTH) has offered another headwind; EHTH stock has lost about a quarter of its value this year.
There is a case for GoHealth stock on the dip. A 20x forward price-to-earnings multiple is reasonable. Medicare demand should rise with still more Baby Boomers reaching the required age. But at least so far, investors don’t seem terribly interested in that case.
ROOT stock may be off the list of worst IPOs of 2020 in a hurry. The stock has bounced 25% just in the last two sessions. And there’s a longer-term case as well.
Indeed, as David Moadel wrote on this site, the auto insurer looks a lot like Lemonade. Both companies are so-called “insurtech” plays that plan to lower prices and boost profit margins using technology.
But even after the recent rally, investors only are buying one of these plays. ROOT still sits more than 30% below its IPO price. Time will tell if the early softness is a massive opportunity or a sign of what’s to come.
To be fair, it’s perhaps somewhat unfair to put McAfee on this list. The provider of anti-virus software isn’t the splashy play it was a couple of decades ago.
Personal computer sales have picked up during the pandemic with so many white-collar employees still working from home. But at this point, market growth remains relatively soft. And ‘Big Tech’ companies like Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) are finding ways to encroach on McAfee’s turf. A significant debt load, owing in large part to its private-equity past, offers another stumbling block.
So the apathy that created the McAfee IPO perhaps isn’t much of a surprise. Still, this is an IPO in a relatively hot market that still hasn’t traded above its IPO price of $20. Not once.
To be sure, third quarter results did look solid, and MCFE stock looks relatively cheap against 2021 earnings estimates. But low-growth tech stocks generally have struggled in this market, and McAfee hasn’t yet proven it will, or can, be an exception to that trend.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.