Birkenstock’s IPO was one of the worst debuts for a billion-dollar deal in a decade

Of the 95 IPOs that have raised at least $1 billion in the past 10 years, only five have performed worse than Birkenstock on their first day of trade. The deal was the worst since AppLovin
APP,
-2.95%
in April of 2021, which ended its first day of trade down 18.5%.

“Larger IPOs are generally at a lower risk of immediately breaking issue: only 20% of the past decade’s billion-dollar IPOs closed negative on the first day, compared to 27% for all IPOs,” Smith wrote in commentary.

For more, read: Birkenstock’s stock falls nearly 13% in trading debut, ends well below IPO price

As for the current state of the IPO market, Smith called poor aftermarket returns an “autocorrect feature” a week ago.

“This week we saw it in action. Until now, getting an allocation on a big IPO meant a first-day pop. But after getting burned on multiple deals, aftermarket buyers didn’t show up this time,” he wrote.

In the case of Birkenstock, valuation “was also a sticking point.” The company priced its deal just below the midpoint of its price range at $46, for a valuation of $8.6 billion, which put it at the top of its peer group on a forward price/earnings ratio basis.

“The company has great fundamentals, but investors need to see it execute to get that kind of elite multiple,” said Smith.

The hot money is gone, “but there’s still plenty of investor demand for solid companies at reasonable prices. It’s not the new normal, it’s the old normal (pre-2020).”

For now, weak companies cannot go public and strong ones are seeking valuations they can’t achieve.

“Against a backdrop of IPO turbulence, wars abroad, and a bond market meltdown, many IPO hopefuls have soured on Q4, but we’re not counting out the quarter just yet,” he said.

The Renaissance IPO ETF
IPO
has gained 25% in the year to date, while the S&P 500
SPX
has gained 12.7%.

For more, see: Birkenstock is going public: 5 things to know about the iconic German sandal maker’s IPO designs