Newly public companies are often among the market’s biggest gainers, and
Upstart Holdings NASDAQ: UPST,
Inari Medical NASDAQ: NARI, and
Montrose Environmental NYSE: MEG are among those on an uptrend since their public-market debuts in 2020.
Companies new to the market tend to attract attention from investors, and in some cases, the media. For example, cryptocurrency exchange Coinbase Global NASDAQ: COIN went public Wednesday via a direct listing, instead of an IPO, and more than 81 million shares moved on day one.
But you don’t have to jump into a new stock the day it begins trading, and the success of young companies isn’t limited to large caps and media darlings. Even less well-known stocks can deliver outsized returns to investors.
As with any other stock, investors should give a new issue some time to establish a trading history. It’s quite typical for a stock to have the “IPO pop,” which occurs on the first day of trading or soon after. You’ll see stock prices rise rapidly in the early days of trading, sometimes by seemingly extraordinary amounts.
From there, the stock will typically settle into a correction that can last for weeks or even months. That’s why it’s not necessary or advisable to jump into the latest hot stock just because you can.
Upstart, a direct-to-consumer lending platform, went public in December, and rallied along its 10-day average for the next seven weeks. It ran to a February 11 high of $105.88 before pulling back.
That pullback brought it below its 50-day average, and offered an opportunity for investors to watch for a heavy-volume rally as a point of entry. That happened on March 18, as the stock bolted 54% in monster volume on Upstart’s fourth-quarter earnings report.
Upstart, founded by a Google veteran, leverages artificial intelligence in the loan-generation process. The stock got some attention on the infamous WallStreetBets subreddit, but ultimately, its 39% revenue growth moved it beyond the designation of “meme stock.”
It’s advanced 156.47% year-to-date and 275% since going public. Shares closed Thursday at $110.40, up $5.89, or 5.64%.
On a technical basis, the stock is still finding its footing, but the earnings expectations are bullish, which could be a reason to jump in now that there is some trading history. Analysts expect earnings to grow 487% this year, to $0.47 per share.
Inari Medical is a medical device maker, focusing on treating blood clots. The stock went public in May 2020, rallied to a high of $84.91 in late August, then retreated into a choppy area of consolidation, marked by wide weekly price swings.
The character of trading continues to be erratic, but the stock eventually rallied to a high of $127.42 on March 11 following a strong fourth-quarter earnings report.
The stock is up 23.87% year-to-date and up 154% since going public. Shares closed Thursday at $108.80, up $0.67, or .62%.
Revenue has been trending higher over the past two years, coming in at $139.67 million in 2020.
Analysts’ consensus rating is “buy,” with a price target of $116.17, representing a 6.90% upside.
The current price consolidation remains choppy, as the stock is not forming a defined pattern yet. Inari Medical is showing excellent technical strength, but is not currently at a buy point. If it begins to approach its previous high of $127.42 in heavy volume, that may offer an entry.
Montrose Environmental provides a wide range of environmental assessment, testing and consulting services for the oil and gas, construction, utilities, chemical and tobacco industries, as well as for various government agencies.
The stock went public in July 2020. It’s up 157% since it began trading, and 82.49% year-to-date. It closed Thursday at $56.49, up $3.08, or 5.77%.
On a yearly basis, Montrose has not turned a profit, but that’s expected to change this year, with analysts eyeing earnings per share of $0.02. That’s expected to grow to $0.38 per share in 2022.
Revenue growth accelerated in the past three quarters, coming in at $108.7 million in the fourth quarter, a 60% year-over-year gain.
The stock advanced in nine of the past 10 months. Even so, the up/down volume ratio is just 1.1, indicating that upside volume is only slightly higher than downside. At this juncture in the stock’s history as a public company, that’s not much to be concerned about.
This one needs a bit more time to develop a more stable trading history, but its gains thus far are impressive, and could bode well for investors looking to stake out a position. Just be aware that the stock has shown some wide price swings lately, which may increase risk of getting shaken out.
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