How do you rate a stock that just went public?

2026-07-10 · By Lubin Danilo, founder of Lubin Investment

My filter relies on 5 years of sales and cash growth to judge a company, a history that a recently listed stock does not yet have. I do not dismiss it for that reason: I lean more on criteria measurable right away, margins, debt, cash conversion, and treat trend based criteria as provisional until more history builds up.

The problem: not enough history

A good part of my filter relies on trends measured over 5 years: sales growth, free cash flow per share growth, the trend in shares outstanding. That history helps separate genuine durable quality from a single good quarter. The problem is that a company listed for only a few months simply does not have 5 years of quarterly reports as a public company.

What is measurable from day one

Fortunately, a good part of my criteria need no history at all: is the company profitable today, how much of its revenue actually turns into available cash, what is its debt level, how long does it take to collect what it sells. These are snapshots at a point in time, not trends. A stock that just went public can already be judged on these, from its very first quarterly report.

What has to wait: long term trends

Take Reddit, which went public in 2024. My filter gives it a 9 out of 10 score: 28.6% net margin, 21.9% cash margin, excellent quality measurable today. But shares outstanding have climbed 64.4% a year over the past 5 years, one of only two criteria that fails for it. Much of that rise comes from the IPO itself and stock based pay to employees, common for a young tech company that wants to retain talent without spending cash. Will that pace of dilution continue or calm down once the company stabilizes? Impossible to tell with one or two years of hindsight. That is exactly the kind of criterion I treat as provisional for a recent IPO: neither ignored nor taken at face value.

The real trap: dilution that does not jump out at you

Still on Reddit, only 77% of accounting profit turns into real cash, below my 100% bar. Much of that gap is explained by the weight of stock based pay in the accounts: it inflates reported profit without ever becoming cash. This is a classic trap for recently listed companies, where stock based pay stays generous during the retention period that follows the IPO. An investor in a hurry who only looks at net income could get caught out.

How I handle these files in practice

I never reject a stock solely for lacking history. I lean more on criteria measurable right away, margins, debt, cash conversion, treat the 5 year trend criteria as provisional rather than definitive failures, and revisit the file with every new quarterly report as history builds up. Patience beats false precision shown too early.

Should you avoid recent IPOs on principle?

No, and that would even be a mistake. Reddit already shows real measurable quality on the criteria available today: solid margins, next to no debt, fast growth. Some recent IPOs are excellent businesses, others are stories that deflate once the hype fades. The method does not change its rigor based on how long a stock has been listed, it simply adjusts its confidence level on criteria that need hindsight. You can check <a href="/analyse/RDDT">the full page on Reddit</a>, or explore <a href="/screener">my screener</a> to see how each criterion is scored on any stock, recent IPO or not.

Some of my criteria need no history at all: profitability, margins, debt, cash conversion. A recent IPO can already be judged on these.
5 year trend criteria (growth, dilution) should be treated as provisional while the trading history is still short.
Real example: Reddit (2024 IPO) already scores 9 out of 10 quality criteria, but its share dilution criterion, 64.4% a year, still needs several more years of hindsight to judge definitively.
The classic recent IPO trap: generous stock based pay that inflates accounting profit without ever becoming real cash.
I never reject a stock for lacking history: I adjust my confidence level, not my rigor.

FAQ

Why does my filter need 5 years of history?

To separate genuine durable quality from a single isolated good quarter. A 5 year trend is far more reliable than one recent number.

Can a stock that just went public still be analyzed?

Yes, on criteria that need no history: current profitability, margins, debt, cash conversion. Trend criteria stay provisional until more quarters are published.

Why do recent IPOs often show accounting profit that does not become cash?

Because they often pay generous stock based compensation to retain employees after going public. That compensation inflates reported profit without ever becoming available cash.

Should you avoid recently listed stocks?

Not systematically. Some are excellent businesses from their very first public quarters. This is not investment advice: do your own research and let time build the history before trusting trend based criteria.

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).