Most companies going public this year entered their debut with a history of losing money. But investors are embracing them anyway.
Through last Friday, 83 percent of U.S. companies going public the first nine months of this year lost money in the 12 months leading up to the IPO, according to data compiled by University of Florida finance professor Jay Ritter. Ritter, whose data goes back to 1980, said this is the highest proportion on record.
The previous highest rate of money-losing companies going public had been 81 percent in 2000, at the height of the dot-com bubble.
Still, the decision to embrace those companies has paid off for short-term investors lately. Money-losing companies listing on U.S. exchanges this year gained an average 36 percent from their IPO price through Friday, according to The Wall Street Journal, which first reported the data. IPOs for those companies with positive earnings gained 32 percent, compared with the S&P 500's 9 percent gain.