Majority of 2011 IPOs Now Underwater

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More than half of the initial public offerings debuting in the U.S. this year are now trading below their offer price, an ominous backdrop for any new stocks hoping to come public.

So far in 2011, according to data tracker Dealogic, 63% of initial public offering listings in the country are below their IPO price, a condition known as being “underwater.”

For any investor who bought–and held–those new stocks in their portfolios over the course of the year, that is a painful reminder that even deals that did well their first day in the spotlight can crater later.

Among the companies trading below their IPO prices are Internet radio firm Pandora Media Inc., which rose 8.9% during its debut in June; physicians’ hand-held software maker Epocrates Inc., which gained 37.3% in February; and Chinese social networking site Renren Inc., which rose 29% in May.

The poor year-to-date performance among IPOs in the U.S. can be blamed primarily on the overall stock market, which itself has been sinking for several months. When stocks in general aren’t doing well, IPOs suffer in turn.

There is a bright spot for new issuers: though the majority are underwater, the performance to date for IPOs is better than stocks in general. IPOs that came out in 2011 are down 6.5% on average from pricing as of the close Tuesday, while the Standard & Poor’s 500 index is down 11.45%, according to Dealogic. Exactly half of 2011 IPOs are trading below the respective S&P 500 performance.

Some of the very best new stocks have managed to hold their value, though they have declined from their first day pops.

Chinese Internet security software company Qihoo 360 Technology Co. Ltd., which rose 134.5% in March, closed Tuesday above its $14.50 IPO price, but is still below the $34 it reached its first day of trading. Professional networking site LinkedIn Corp., which gained 109% in May, ended Tuesday above its $45 IPO price but below its first day closing price of $94.25.

Some have even managed to push higher: real estate site Zillow Inc., which popped 78.9% in July, closed Tuesday above both its IPO and its first-day close, as has Latin American McDonald’s franchisor Arcos Dorados Holdings Inc., which rose 24.7% in April.

From an industry perspective, professional services leads the sector list for average current returns, driven by Nielsen Holdings N.V., up 20.87% from the offer, and Zillow, up 86.38% from the offer, Dealogic said.

ByStander