Robinhood Stock Roars Back, But Weak IPO Launch Is Historically A Bad Sign

The historically bad market debut of Robinhood Markets Inc HOOD last week must seem like a distant memory for investors on Tuesday, with the stock gaining 24.2% in the regular trading session. 

For now, all is forgiven for Robinhood investors, but the initial market skepticism of Robinhood last week has historically been a bad sign for an IPO’s longer-term outlook.

Other Lackluster IPO Debuts: Robinhood shares dropped more than 8% on the first day of trading last week, the worst first-day performance of any IPO its size or larger in history, according to Bloomberg.

Robinhood’s lackluster day-one performance exceeded the previous record holder, brokerage firm MF Global.

MF Global went public back in 2007 and declared bankruptcy in 2011. CIT Group Inc. CIT also had a rough first day of trading during its IPO in 1997. CIT ultimately went bankrupt in 2009.

Related Link: Robinhood Stock Opens At $38, Initially Trades Below IPO Price

More recently, Uber Technologies Inc UBER had a horrible first day of trading during its IPO in 2019. After pricing shares at the low end of its IPO range, Uber shares plummeted. More than two years later, they are still trading below their $45 IPO price.

The lone performance standout among the top five worst first-day performers is PepsiCo, Inc. PEP, which has generated a 1,810% total return over the last three decades.

One Potential Red Flag: On Monday, Berna Barshay, editor and research analyst at Empire Financial Research, said the fact Robinhood allocated such a high percentage of its IPO shares to its own users is a potential red flag.

“It's unfortunate, but hot deals with shares very much in demand get allocated to Wall Street's highest-paying clients ... the hedge funds and mutual funds that pay the highest annual commissions, with perhaps a few shares thrown at ultra-high-net-worth investors that not only trade with the big banks but also take out loans from them or invest in bank-sponsored private equity funds,” Barshay wrote.

“When retail investors get a big slice of a deal, it's often because Wall Street is ‘stuffing’ them with shares in an unpopular IPO.”

Benzinga’s Take: Robinhood’s huge move on Tuesday came without any major news from the company, and investors may see it as a good sign Robinhood is on the way down the path PepsiCo blazed.

However, Uber IPO investors remember all too well that the stock initially rebounded as high as $47.08 in its first several weeks of trading before plummeting back down to around $25 before the end of the year.

Photo: the Robinhood app. Courtesy photo.