In theory, IPOs should be simple. A new stock is sold at a discount to listed peers, investors buy it and then it trades up.

Reality is a lot more complicated, with IPOs often underperforming established stocks. This year, however, IPO investors are finally enjoying outsized returns over major indices.

Due to the strong debuts of large IPOs such as CVC [AMS:CVC] and Galderma Group [SWX:GALD], the weighted return of European IPOs priced so far in 2024 was 19% on the afternoon of May 2.

On Friday morning, Puig [BME:PUIG] the largest IPO in Europe this year began trading in Madrid and was just above its IPO offer price as of 2:30pm local time.

Source: Dealogic as of May 2

The performance of Europe’s IPO market dwarfs the YTD returns of the Stoxx 600, S&P 500 and the US Nasdaq index and should give ECM investors some comfort when allocating capital throughout the rest of the year.

Some bankers have suggested that the aftermarket of some of the best performing IPOs in Europe this year might be a double-edged sword.

While investors have undoubtedly been enthused by the strong trading of this year’s cohort, some advisors are worried that sellers may have left too much on the table by pricing deals cheaply.

However, given that most sellers are still sitting on substantial holdings of their companies they will have gained alongside investors from rising share prices.

While bankers might try to use investor gains to encourage them to be more generous on price, the buyside will look at one of the best starts to a European IPO year, in terms of performance, for some time and conclude that being disciplined on price has served them well so far.

Europe’s big IPO performance

Source: Dealogic

Before Puig begun trading on Friday May 3, Europe has had more IPO wins than it has had losses, a stark contrast to the start of 2023, when many new deals traded down for a significant period before some started to recover.

“Of the big IPOs we have had in Europe, four are trading up double, two are flat and Douglas is trading badly,” said an ECM banker. “Investors are still asking for big discounts but any talk that the IPO market is broken is definitely not true.”

Some top names in Europe’s IPO pipe

Source: Dealogic

Short-term gains are a fickle thing with IPOs and, if a stock goes on a long-term run higher or lower, then the first few months of trading are quickly forgotten.

But in terms of market sentiment, you can’t beat good news and a bit of benchmark beating alpha.