Initial public offerings are a poor deal for most investors, according to a new study by Peter Schliemann, manager of the Babson Enterprise Fund, a small-company mutual fund managed by David L. Babson & Co., Cambridge, Mass.
Among the findings:
Few companies - only 14% -improved on their fundamental sales and earnings trends after going public; 69% had deteriorating trends.
Most companies - almost 80% - achieved peak profit margins within four quarters before or after their offerings.
A quarterly earnings drop in the first four quarters after the IPO occurred in 58% of the companies. More than 75% had a decline within two years.
Some 19% of the companies actually lost money in one of the first four quarters after the IPO. This excluded all companies that lost money throughout the whole period or had normal seasonal losses, "so it was even more frightening," the study said.
One in four companies lost money throughout the period leading up the IPO as well as the following years.
The study reviewed 452 companies that went public in 1992.