IPOs - Historical Performance

IPOs (Initial Public Offerings) is the first sale of a companies stock to the public. This price of the initial offering is set for investors who have access to the brokerages offering the stock. But when the stock becomes available on the open market, the price is often volatile for the first several days.

Jay Ritter, a finance professor at the University of Florida, says his research shows that historically, companies with less than $50 million in sales have underperformed the market after going public, while those with sales above $50 million generally outperform. Stocks also tend to experience a price jump in the first six months after the IPO before lockups typically expire, he added. "Companies tend to get the first few quarters right on earnings, then they trail off," Ritter said.

People interested in investing in IPOs should do a lot of research into the companies before they invest, as many offerings will trade down on their first day of trading.