A company goes public. The hype is real: press coverage, analyst commentary, social media discussion. The opening bell rings and the stock pops 20% on its first day of trading. Do you buy in? Or do you wait to see whether the excitement translates into something durable?
For many investors, knowing when is the best time to buy IPO stocks is a question that catches even the most experienced off guard. The answer requires understanding how IPOs are actually priced, what drives first-day movements, and what history tells us about returns in the months and years that follow.
How IPO Pricing Works and Why It Matters
Before evaluating whether to buy on day one, it helps to understand what you are actually buying and at what price. The ‘IPO price’ is the price set by the company and its underwriters for the initial allocation of shares, which goes to institutional investors and high-net-worth clients with relationships to the lead underwriter. Retail investors typically see only about 5% to 10% of the total allocation.
When the stock begins trading on the open market, the price you pay as a retail investor buying at the open has often already moved significantly from the IPO price. This gap between the allocation price and the market open price is called the ‘first-day pop’, and it is one of the key reasons that day-one buying is more complicated than it appears.
The First-Day Pop: What It Is and What It Is Not
The average first-day return for IPOs has historically been around 19% in the United States, based on 1980 to 2025 data. That sounds attractive. But it almost entirely accrues to the institutional investors who received the IPO allocation, not to retail investors buying after the market opens.
For a retail investor who buys at the open on day one, the effective entry price is the already-elevated first-day trading price. The returns from that point are a different calculation entirely, and they are substantially less predictable than the headline ‘pop’ figures suggest.
Why Prices of IPOs Drop After Listing?
Understanding why IPO prices drop after listing requires understanding several dynamics that typically play out in the weeks and months after a company begins trading:
Lock-Up Expiry
Most IPOs include a lock-up period, during which company insiders, founders, early employees, and pre-IPO investors are restricted from selling their shares. When the lock-up expires, significant selling pressure can emerge as these early holders realise their gains. This is a well-documented pattern that often creates meaningful downward price pressure around the 90 to 180-day mark.
End of the Quiet Period
In the period immediately following an IPO, underwriters are restricted from publishing research. When the quiet period ends, analyst coverage begins. This can move prices in either direction depending on the assessments that emerge. Companies that received inflated IPO-period valuations often face downward revisions when objective analysis appears.
Earnings Reality vs IPO Narrative
IPO prospectuses are marketing documents as much as they are disclosure documents. The business is presented in the most favourable possible light, and projections are often optimistic. Once the company begins reporting earnings as a listed entity, the gap between IPO-period expectations and delivered results can be painful. A 2025 study found early enthusiasm often fades as valuation assumptions normalise, especially for companies in ‘hot’ IPO markets.
Underwriter Price Support Withdrawal
On the first day of trading, underwriters may actively defend the IPO price by buying shares if the stock falls below it. This support typically ends after day one. Stocks that were only holding at their IPO price due to underwriter support can see meaningful declines once that buying stops.
What Does the Historical Data Show?
LPL Financial analysed data on IPOs from approximately April 1995 to April 2025, 30 years of results, measuring one-year price-based returns from the closing price of the first day of trading. The findings were instructive: the average return was 10.5%, which sounds reasonable. However, the standard deviation of those returns was 107%, meaning the range of outcomes was enormous.
What that average masks is a small number of exceptional performers pulling the mean upward, and a majority of IPOs that delivered mediocre or negative returns. Jay Ritter, a professor at the University of Florida who has studied IPOs for decades, found that newly public companies go on to beat the overall market in some years but underperform in others — particularly in years that produce a bumper crop of new listings.
The class of 1999, a record IPO year, delivered three-year returns of negative 48% measured from first-day closing prices, according to Ritter’s research. The exceptions were exceptional outliers; the average experience was very poor.
| Timing of Purchase | Typical Outcome |
| IPO allocation (institutional) | Captures the first-day pop; best statistical position |
| Market open, day one (retail) | Buys at or near first-day high; misses most of the pop |
| After quiet period ends (~day 25) | Analyst coverage provides more information; still volatile |
| After lock-up expiry (90-180 days) | Selling pressure from insiders often creates better entry |
| 6-12 months post-listing | Expectations have reset; institutional ownership more stable |
Source: Compiled from LPL Financial, 2026 and Smith Anglin, 2026.
Should You Buy IPO On First Day?
The question has a research-backed answer: later is generally better than earlier for most retail investors. Market data shows that some of the strongest IPO entry points occur six to twelve months after listing, once expectations have been reset, insider selling has largely occurred, and institutional ownership has stabilised.
A practical approach recommended by experienced analysts is to wait for the stock to establish what is sometimes called an ‘IPO base’, a period where it trades in a relatively narrow range rather than experiencing dramatic daily swings. This pattern signals that the initial flipping and early enthusiasm have settled, and the stock is finding genuine long-term holders.
Evaluating IPOs requires more than reading the hype. Independent stock market technical analysis of the business model, financials, and valuation is essential before committing capital. The Rivkin Report provides that level of research. Check it out today to see what you have been missing out on!
Long-Term vs Short-Term IPO Investing: Differences
The distinction between long-term and short-term IPO investing fundamentally changes how you should approach the decision.
Short-Term IPO Trading
Short-term IPO trading, buying on day one with the intention of selling quickly if the stock continues rising, is a strategy that works when you receive an IPO allocation at the issue price and the stock pops. For retail investors buying at market prices on day one without an allocation, the margin of safety is much thinner. The pop has often already happened, and the stock is more likely to retrace than continue rising in the days that follow.
Long-Term IPO Investing
Long-term IPO investing is a fundamentally different activity. It involves identifying a genuinely high-quality business at the IPO stage and holding through the volatility that comes with early public market life. Some of the best long-term investments in history have been IPOs — but they were identified on the basis of business quality, not on IPO hype.
For long-term investors, the IPO date itself may actually not be the best time to buy. The business will still exist in six months, and you will have significantly more information about how management performs under public company scrutiny, what the actual earnings trajectory looks like, and whether the IPO-period narrative was accurate.
Frequently Asked Questions
1. Should I buy an IPO stock on the first day of trading?
For most retail investors, buying at the market open on day one means paying a price that has already been elevated by the first-day pop. The statistical evidence suggests that waiting for the stock to stabilise, after the quiet period ends, after lock-up expiry, or after 6 to 12 months, often provides better entry conditions.
2. Why do so many IPOs fall after their first day?
Common reasons include the withdrawal of underwriter price support after day one, the end of the quiet period bringing analyst coverage that may not be as positive as IPO-period sentiment, and lock-up expiry creating selling pressure from insiders. The gap between IPO narrative and delivered earnings results is also a frequent driver of post-listing declines.
3. How do I evaluate whether an IPO is worth buying?
Read the prospectus carefully, focusing on the use of IPO proceeds, the existing revenue and profit trajectory, competitive positioning, and how the management team has performed in previous roles. Compare the IPO valuation to comparable listed companies in the same sector. Be particularly sceptical when the IPO market is ‘hot’; history shows that bumper IPO years tend to produce weaker average returns.
4. What is a lock-up period and why does it matter?
A lock-up period is a contractual restriction preventing company insiders from selling shares for a defined period, typically 90 to 180 days, after the IPO. When it expires, selling pressure from insiders realising gains can push the share price down. Investors who are aware of the lock-up expiry date can factor this expected selling pressure into their timing.
5. Does a big first-day pop mean an IPO is a good investment?
Not necessarily. A large first-day pop primarily benefits those who received the IPO allocation at the issue price — typically institutional investors. For a retail investor buying after the market opens, the pop has already been captured by others. A large pop can actually indicate the stock is now overvalued relative to fundamentals, increasing the risk of a subsequent decline.
Conclusion
So, should you buy an IPO on the first day? This question has a clear answer for most retail investors: exercise caution. The first-day pop is largely inaccessible to those buying at market prices, the early weeks of trading are marked by volatility and incomplete information, and the statistical record of day-one buyers is notably mixed.
The more durable approach is to treat an IPO as the beginning of a research process rather than an investment trigger. Allow several quarterly earnings reports to pass, let the lock-up expiry clear, and assess the business on its actual performance rather than its IPO narrative. The company will still be there, and you will have much better information with which to make the decision.
Separating IPO hype from genuine investment opportunity takes clear-headed research and independent analysis. The Rivkin Report is the best stock newsletter for self-directed investors who want to make better-informed decisions on both ASX and US equities. Get in touch with us to learn more!
