A low interest rate environment and the stock market’s bullish run have been driving increased initial public offering (IPO) activity since last year. And investor enthusiasm for IPOs has helped recently listed stocks Coinbase Global, Inc. (COIN) and C3.ai, Inc. (AI) soar. However, considering their limited growth prospects, we think these IPO stocks look extremely overvalued at their current price levels and are best avoided now.The opportunity to go public quicker and cheaper led to a record increase in IPOs in 2020. Total IPOs increased to 480 in 2020 from 233 in 2019. Historically low interest rates and an upbeat stock market have been motivating factors for companies to go public.
This trend has continued this year. As of March 2021, U.S. markets recorded nearly 400 IPOs. This compares to just 37 IPOs in the same period a year ago. However, concerns over rising inflation and investors’ rotation to cyclical stocks pose a threat to many recently listed stocks.
Investor optimism over the recently listed stocks of Coinbase Global, Inc. (COIN) and C3.ai, Inc. (AI) helped them hit price levels that are not justified by their recent financial performance and growth prospects. So, we think these stocks could continue retreating in the near term.