The IPO market in 2023 has been anything but hot. After a record-breaking year in 2021, the appetite for new listings has cooled down significantly, first in 2022 and continuing into the current year. Several factors have contributed to this slowdown, such as rising interest rates, inflation fears, geopolitical tensions, regulatory uncertainties and what some analysts view as a looming recession. Despite a small revival in September with the successful debut of ARM Holdings, the Softbank-backed chip designer, many investors are not pouring back into the IPO market like they had done in 2021. They are more cautious and selective, favoring quality companies with strong fundamentals, proven business models, and positive cash flows.
Below are three recently IPO’d stocks investors should dump now before real damage wipes out significant shareholder value.
IPO Stocks to Dump: Instacart (CART)
Maplebear Inc., which does business under well-known brand Instacart (NASDAQ:CART) is an online grocery delivery platform, that went public on September 19th at $30 per share, valuing the company at $39 billion. The IPO was one of the most anticipated of the year, as Instacart had benefited from the surge in demand for online grocery shopping during the pandemic. However, the company faces several challenges that could undermine its growth prospects and profitability. Instacart relies heavily on gig workers to pick and deliver groceries from partner stores, and this could expose it to certain regulatory actions. Legal battles concerning how to classify gig economy works have already continued to ensue in the California court system and could potentially do so elsewhere in the states.
Furthermore, investors are doubting whether or not Instacart can meaningfully increase order volumes throughotu the next quarters. Let’s remind ourselves that Instacart competes with well-established players in the grocery industry, such as Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN), Kroger (NYSE:KO) and Costco (NASDAQ:COST). All of these have their own delivery services or partnerships. Shares have already dipped below their offering price. As investors continue to be bearish on tech stocks with unproven or struggling business models, Instacart’s shares will probably continue to struggle for the foreseeable future.
Vinfast (VFS)
VinFast (NASDAQ:VFS) has already made my list on “3 Stocks Making Headlines,” and the Vietnamese carmaker was not making headlines for good reasons. Back then, Vinfast catapulted into headlines after its NYSE debut saw shares eclipse the value of legacy automakers, including Ford and General Motors. Shares are now trading around $12.88 a share, significantly below their $82.35 high. The automaker’s Q2 earnings report did nothing to alleviate investor concerns. Sure, total sales were up 131.2% Y/Y, but this was mostly driven by VinFast’s domestic market and not stated target market, the United States. Sales significantly lagged overall in VinFast’s North America market with only 3,000 units of the automaker’s VF8 model delivered.
The reason for the severe underperformance was VinFast already acquiring a bad reputation in the U.S. due to the less than stellar launch of VF8. Unless VinFast’s brand reputation improves significantly in its key end-markets, investors should not expect much in terms of share appreciation.
Neumora Therapeutics (NMRA)
Neumora Therapeutics (NASDAQ:NMRA), a biotech company focused on developing treatments for neurodegenerative diseases such as Alzheimer’s and Parkinson’s, went public on September 15th with an offer price of $17.00 a share, which valued the company at $2.5 billion, but debuted below its offer price at 16.50 a share. The IPO was driven by the high unmet medical need and huge market potential for these diseases, as well as by the approval of Biogen’s controversial Alzheimer’s drug Aduhelm by the Food and Drug Administration (FDA).
Nonetheless, the company faces several obstacles that could potentially derail its clinical development and commercialization efforts as well as devalue shares. Neumora Therapeutics has no approved products or revenue streams yet. One of the company’s lead candidates, NMRA-511, is still in Phase 1 trials for Alzheimer’s disease, and has not shown any efficacy or safety data yet.
Moreover, Neumora Therapeutics operates in a highly complex and uncertain field of research, where many promising drugs have failed to demonstrate positive results or meet regulatory standards. All in all, given Neumora is still pre-revenue and valuation is only predicated on uncertain, future earnings, investing in this biotech firm’s shares is almost like putting money in the lottery. There’s no clear way to predict how the company will perform in the future, and current shareholders should be weary.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
