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Initial Public Offerings (IPOs) can offer compelling opportunities in the equities market due to their potential for high growth and various other factors. When a company goes public through an IPO, it often signifies a stage of maturity and readiness for expansion. Investors are attracted to IPOs as they provide a chance to invest in a company during its early stages of public trading, potentially capitalizing on significant appreciation as the business grows. Additionally, IPOs often generate substantial media attention, attracting both institutional and retail investors. The excitement surrounding a new stock can lead to increased demand and upward price momentum. However, it's essential for investors to conduct thorough research, considering factors like the company's financial health, competitive landscape, and growth prospects, as investing in IPOs also comes with risks associated with the uncertainties of newly listed companies in the public market. When looking for IPOs to invest in, market participants should look for the following:
· A Welcoming Market Backdrop: 75% of a stock’s direction is correlated with the underlying market trend, so it is paramount that investors focus on whether the equity market is in a bull or bear market. Because IPOs are especially “risk-on” vehicles, it is essential to emphasize this factor. Currently, stocks are above their key moving averages and trending higher – evidence that the market is in a bull trend and IPOs can be purchased.
· Deep Liquidity: Institutional investors, such as mutual funds, banks, and hedge funds, are the biggest drivers of stocks. However, to establish a position, institutions require liquidity. If you are trading an IPO, ensure that it trades at least a few hundred thousand shares per day minimum.
· Innovation & High-Growth: The idea of buying a newly public company is to take advantage of its early growth trajectory. Screen for stocks that are part of innovative industries and have high earnings growth. These stocks have the most long-term potential.
Zacks Rank #2 (Buy) stock CAVA is a healthy fast-casual restaurant operator. Started by first-generation Greek Americans, CAVA Group operates hundreds of Cava Grill Mediterranean restaurants across the United States.
Benefitting From the Fast-Casual Trend
Chipotle Mexican Grill ((CMG - Free Report) ), the first mainstream fast-casual restaurant operator, proves that the concept works for investors. Since its inception, the stock is up more than 5,000%! It’s clear – customers want fast, affordable, and healthy food options. Establishments like CAVA offer a middle ground between traditional fast food and sit-down dining, providing a quick and convenient dining experience with a focus on higher-quality ingredients.
EPS Surprise History
Thus far, CAVA has only reported quarterly results twice as a public company. However, CAVA has impressed both times and smashed Zacks Consensus estimates.
Image Source: Zacks Investment Research
In the third-quarter conference call, the Co-Founder and CEO remained bullish by saying, “CAVA’s results in the third quarter clearly demonstrate the strength and portability of our category-defining brand and highly differentiated offering. Revenue was up 49.5% of the last year, driven by 14.1% CAVA Same Restaurant Sales Growth including 7.6% traffic growth.”
Zacks Rank #2 (Buy) stock Arm Holdings is a British semiconductor and software design company known for developing advanced computer architecture and technology. Arm specializes in designing and licensing intellectual property for microprocessors, including the popular ARM architecture used in various electronic devices such as smartphones, tablets, and embedded systems. Arm does not manufacture its own chips but licenses its technology to various companies in the semiconductor industry, allowing them to create custom processors based on Arm's architecture. This business model has made Arm a key player in the mobile computing and Internet of Things (IoT) markets.
IPO U-Turn Base Breakout Precedent
Those who traded Alphabet’s (GOOGL) IPO probably recognize ARM’s IPO U-turn base. In my view, GOOG is an excellent precedent for ARM because at the IPO both were high growth, liquidity, and established a very similar base structure. Can ARM mimic Google’s success?
Image Source: TradingView
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IPO Watch: 2 Stocks to Buy
Initial Public Offerings (IPOs) can offer compelling opportunities in the equities market due to their potential for high growth and various other factors. When a company goes public through an IPO, it often signifies a stage of maturity and readiness for expansion. Investors are attracted to IPOs as they provide a chance to invest in a company during its early stages of public trading, potentially capitalizing on significant appreciation as the business grows. Additionally, IPOs often generate substantial media attention, attracting both institutional and retail investors. The excitement surrounding a new stock can lead to increased demand and upward price momentum. However, it's essential for investors to conduct thorough research, considering factors like the company's financial health, competitive landscape, and growth prospects, as investing in IPOs also comes with risks associated with the uncertainties of newly listed companies in the public market. When looking for IPOs to invest in, market participants should look for the following:
· A Welcoming Market Backdrop: 75% of a stock’s direction is correlated with the underlying market trend, so it is paramount that investors focus on whether the equity market is in a bull or bear market. Because IPOs are especially “risk-on” vehicles, it is essential to emphasize this factor. Currently, stocks are above their key moving averages and trending higher – evidence that the market is in a bull trend and IPOs can be purchased.
· Deep Liquidity: Institutional investors, such as mutual funds, banks, and hedge funds, are the biggest drivers of stocks. However, to establish a position, institutions require liquidity. If you are trading an IPO, ensure that it trades at least a few hundred thousand shares per day minimum.
· Innovation & High-Growth: The idea of buying a newly public company is to take advantage of its early growth trajectory. Screen for stocks that are part of innovative industries and have high earnings growth. These stocks have the most long-term potential.
3 2023 IPOs to Consider
CAVA Group ((CAVA - Free Report) )
Zacks Rank #2 (Buy) stock CAVA is a healthy fast-casual restaurant operator. Started by first-generation Greek Americans, CAVA Group operates hundreds of Cava Grill Mediterranean restaurants across the United States.
Benefitting From the Fast-Casual Trend
Chipotle Mexican Grill ((CMG - Free Report) ), the first mainstream fast-casual restaurant operator, proves that the concept works for investors. Since its inception, the stock is up more than 5,000%! It’s clear – customers want fast, affordable, and healthy food options. Establishments like CAVA offer a middle ground between traditional fast food and sit-down dining, providing a quick and convenient dining experience with a focus on higher-quality ingredients.
EPS Surprise History
Thus far, CAVA has only reported quarterly results twice as a public company. However, CAVA has impressed both times and smashed Zacks Consensus estimates.
Image Source: Zacks Investment Research
In the third-quarter conference call, the Co-Founder and CEO remained bullish by saying, “CAVA’s results in the third quarter clearly demonstrate the strength and portability of our category-defining brand and highly differentiated offering. Revenue was up 49.5% of the last year, driven by 14.1% CAVA Same Restaurant Sales Growth including 7.6% traffic growth.”
Arm Holdings ((ARM - Free Report) )
Zacks Rank #2 (Buy) stock Arm Holdings is a British semiconductor and software design company known for developing advanced computer architecture and technology. Arm specializes in designing and licensing intellectual property for microprocessors, including the popular ARM architecture used in various electronic devices such as smartphones, tablets, and embedded systems. Arm does not manufacture its own chips but licenses its technology to various companies in the semiconductor industry, allowing them to create custom processors based on Arm's architecture. This business model has made Arm a key player in the mobile computing and Internet of Things (IoT) markets.
IPO U-Turn Base Breakout Precedent
Those who traded Alphabet’s (GOOGL) IPO probably recognize ARM’s IPO U-turn base. In my view, GOOG is an excellent precedent for ARM because at the IPO both were high growth, liquidity, and established a very similar base structure. Can ARM mimic Google’s success?
Image Source: TradingView