When Shake Shack stock ballooned to over $90 per share following its IPO last year, I was worried for the people with no real financial literacy that were inevitably drawn to the bright lights of an IPO in an easy-to-understand industry that enjoyed an emerging brand name. Many of the Shake Stock stock IPO (or shortly thereafter) investors were purchasing stock for the first time, and were excited to get in near the ground floor on a business primed for 10+ years of very high earnings growth.
The problem is that anytime casual investors collectively get really excited about something, it almost always signals that the asset you’re considering is going to be overpriced. There’s nothing quite like an IPO for a corporation with a scalable business model that creates a period of maximum investor excitement. Often times, you’re best off waiting a year or two to assess the stock, as the decline in investor excitement is a good opportunity to reassess whether the stock price has come down to a reasonable value.