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What happened

Shares of Savers Value Village (NYSE: SVV) slipped over 10% this week, according to data provided by S&P Global Market Intelligence. The recent entrant to the public markets had no big news to note, which means it is likely just suffering from the post-IPO malaise. At one point this week, shares of the stock were down over 15% before recovering on Friday.

So what

Savers Value Village is a for-profit thrift store operator in the United States. People give the stores their old and used items that Value Village then sells to shoppers looking for big discounts. It went public earlier this summer with a market cap of $4 billion.

Today, its market cap is down to around $3 billion with the stock sinking over 20% in the last month. But there has been no recent news from the company, so why is the stock sinking? It’s simple. On average, recent IPOs underperformed the broader market, with 32% of new stocks trailing the market by more than 10% in the first three months after going public.

But why does this occur? There are likely two culprits. First, IPOs are generally priced for perfection, which can lead to a lot of underperformance as the business and stock prices eventually converge. Second, when a company goes public, there are a lot of shareholders who are looking to exit their positions. As they do, that can create downward pressure on the stock price for a short while.

Now what

Savers Value Village seems to be down simply due to market dynamics. But the business looks solid. In 2022, it generated over $200 million in operating earnings, which does not look crazy expensive versus its current market cap of $3 billion. If you believe that the thrift store industry has room to grow in the United States, Savers Value Village could be a stock to put on your watch list.

Now might not be the best time to buy shares with it still being so close to its public debut, but there could be a great buying opportunity in Savers Value Village for patient investors in the coming years.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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