Weiss Ratings launches IPO scoring system for new U.S. listings

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Weiss Ratings IPO scoring system

Highlights

Weiss Ratings launched the Apex IPO System, a scoring model analyzing SEC-filed IPOs based on factors derived from 3,300 historical deals over 30 years.
Weiss's research shows only 30% of IPOs outperform the market by 10% or more, with the top 10% beating the market by up to 300% over three years.
The system classifies IPOs as 'Uninvestable,' 'Investable, Added Caution,' or 'Investable,' aiming to help investors avoid speculative launches like SentinelOne, Rivian, and Peloton.

Backtested model targets IPO selection

As reported by Weiss Ratings, the Apex IPO System evaluates every new IPO that has filed Securities and Exchange Commission paperwork but is not yet trading, assigning a Weiss IPO Score based on factors identified in historical analysis of 3,300 deals over more than 30 years.

Weiss says the system would have flagged cybersecurity company SentinelOne as “Uninvestable” when measured against the model’s criteria. The firm points to SentinelOne’s 2021 market debut, when the company priced its IPO at $35 a share on the New York Stock Exchange, raised $1.2 billion and reached a valuation of nearly $9 billion.

The stock opened at $46 on its first trading day and later climbed to a peak of $76.30 within five months, giving opening-day investors a gain of 66% at the high. Weiss says the shares have since lost 80% from that peak, arguing that the case reflects the risks of enthusiasm-driven pricing for unprofitable companies.

Under the framework, IPOs are classified into three categories: “Uninvestable,” “Investable, Added Caution,” and “Investable.” Weiss describes the first group as cash-burning offerings with major warning signs, the second as candidates for shorter-term trading gains rather than long-term holding, and the third as listings backed by stronger growth, fairer valuations and investors with a record of supporting successful companies.

Research points to sharp gap in returns

Weiss says its historical research shows roughly 30% of IPOs go on to beat the market by 10% or more, but it argues the most meaningful outperformance comes from the top 10% of deals. According to the firm, that group has historically outperformed the market by 75% in the first year, about 175% by the second year and as much as 300% by the third year.

The company says the weakest IPOs tend to follow a repeat pattern: they attract heavy investor interest, debut at valuations that assume years of future growth, surge on the first day and then leave investors with losses that take years to recover. Weiss cites SentinelOne, Rivian and Peloton as examples of offerings that fit that pattern.

For investors in the U.S. equity market, the pitch reflects continued demand for tools that distinguish between momentum-driven listings and IPOs with more durable fundamentals. Weiss says its objective is not to own every new issue, but to avoid the most speculative offerings while identifying the smaller group with characteristics shared by past market outperformers.

Our earlier article on Firmus’s planned ASX IPO covered signs of weakening demand as the bookbuild wrapped up, raising the likelihood of a lower offer price versus initial targets. We highlighted how investor concerns around valuation, leverage, and heavy power requirements were weighing on appetite for the data-centre operator ahead of its scheduled listing.

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