Another miracle IPO stock is down 82% since its IPO. Wall Street hype and hoopla machine screeching to a halt

The end of a truly amazing era.

By Wolf Richter for WOLF STREET.

So now we have another stock that went public less than a year ago and then promptly plummeted 82%, including today’s 29% plunge after last night’s news about a tiny increase in sales, a hit to sales forecasts and a another big loss. This misguided Wall Street Hype & Hoopla product has now brought down almost every investor who has ever touched it.

For about a year I have been yelling about IPO stocks and SPAC stocks that have been hyped to the nth degree by the Wall Street Hype & Hoopla Machine and whose stocks have then been sold to the public at huge valuations and after a quick ” Pop,” promptly collapsed, one after the other.

The last time I saw something like this was during the dot-com bust. But this feels a lot worse because it’s just the beginning and the composite indices haven’t come down yet, although they’ve come down a bit.

So here we are with the miracle IPO of the day that collapsed in 10 months. I have no problems with the company or its products. Selling diapers, beauty products, shampoos, face masks and so on, ok, fine if the company can make money from it. But it turns out it can’t make any money from it.

And this hype & hoopla product screwed up confused retail investors who, blinded by greed and a belief in a new paradigm, eagerly ate up that hype and hoopla they were fed, and they got what they expected. Yup, been there, done.

But that’s pretty thick, even by Hype & Hoopla standards.

So the stock in the sickening horror chart below is The Honest Company [HNST] since the IPO. The IPO price was $16 per share. Trading began on May 5, 2021, and on that day the price “slammed” 50% to its all-time high of $23.88, giving the company a $2.2 billion valuation – for a diaper and shampoo $300 million annual company decked out in huge losses, a tiny loss-making company in a field crowded with giants.

This morning’s 29% plunge to currently $4.32 barely registers in the overall 82% plunge since the first-day high last May (data via YCharts):

The end of a truly amazing era.

We’ve now seen chart after chart like this: A big price when they start trading and maybe a “pop” that the financial media goes oohs and aahs about and a few months later there’s not much left.

This has been the same over and over again, including a few days ago with the three BBQ Grill IPO stocks. It’s not an accident. It was a systematic attempt by Wall Street and its minions and all manner of insiders and pre-IPO investors to weed out hapless small investors for as long as possible.

The fact that these stocks are now crashing has these retail investors sitting up and paying attention, and suddenly the IPO market is essentially closed.

How is the Wall Street hype & hoopla machine supposed to sell these ridiculously overpriced stocks when investors are actually paying attention? Well, they can’t. And the IPO volume fizzles out. And this is now.

In the last three months — December through February — the number of IPOs in the U.S. has fallen 71% year over year to just 25, according to Renaissance Capital. From March through March 21, there were only two IPOs. This gig is over.

Over a year ago, on March 3, 2021, I asked, “Was that the IPO stock bubble that just burst?” And we now know the answer.

Honestly.

The Honest Company reported last night that its fourth-quarter revenue of $80.4 million rose just 3% year over year and didn’t even keep pace with CPI inflation. And it reported a loss of $9 million for the quarter, bringing its full-year loss to $38.7 million for the year, up 167% from 2020.

It reported a 68% slump in sales in the “home and wellness” category, which includes face masks and sanitizing products. So there you go: This was a different company, like the BBQ grill maker IPOs, that rode up the pandemic boom and at the very end of the boom, when everyone already knew it was going to end, offered the shares at a ridiculous price the public sold rating on the idea that the brief pandemic boom would be an enduring feature of the company.

The company also lowered its sales guidance and said it would raise the prices of most of its products to cope with rising costs and inflation.

The company was founded by film and television star Jessica Alba in 2012, and her Hollywood glamor carried a lot of weight with clients and investors. As of 2018, $730 million had been raised. Alba landed on the cover of Forbes. The company became embroiled in a scandal over ingredient labeling on some of its products, which was deeply embarrassing for a company running on the meme that its products are somehow “honest.”

But OK, marketing is marketing and a name is just a name and I get that and I wish the company the best of luck and I hope they make it. But the Wall Street hype & hoopla machine is finally grinding to a halt after wringing their pound of flesh from retail investors, and that’s a good thing.

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