Klarna stock's post-IPO moves require patience from investors hoping to make money out of the booming "buy now, pay later" trend.
Stockholm-based Klarna is among the first wave of personal fintech companies focused on offering short-term loans to consumers with few or no fees.
BNPL loans are growing in popularity as cash-strapped consumers seek relief from rising costs and prices. By striking deals with major retailers like Walmart, Best Buy, Amazon and Apple, companies like Klarna and Affirm offer their options to customers seamlessly at checkout.
Klarna stock is currently in its second day on the market and is trading at around 43.30, 8% above from its IPO price of 40, but off its opening day peak of 55.20.
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Being Patient With Fresh IPOs
"This is pretty typical," Eric Krull, co-author of The Lifecycle Trade, tells Investor's Business Daily's "Investing with IBD" podcast. He says the stock will inevitably see wild fluctuations on day one of trading. He also says that most of the time, stocks will undercut their day-one low within three weeks.
Klarna stock, like most IPOs, has not been on the market long enough to show actionable characteristics. "Be patient, never buy day one," Krull said. "This is pretty typical. The stock will have some wild vacillations on day one, and most of the time, stocks undercut their day-one low within three weeks."
Krull points to Figma, another recent IPO that surged after its debut before moving below its lows. "This is why we preach patience," Krull said. He says new IPOs tend to rise higher on initial excitement, fueling even more interest as investors think they're missing out.
"Most of the time the day one low is undercut, then the stock will go sideways for a while, and then form some sort of base you can buy," Krull said. "But in this case, it hasn't formed a good base yet and you're still out."
Klarna Stock's Appeal Rises
Last year, consumers spent as much as $991 million on Cyber Monday using BNPL according to Adobe Analytics.
For retailers, BNPL loans help drive sales by making big purchases look more affordable — while pushing risk to the loan provider. Customers owe their debts to the BNPL provider, not the retailer. For consumers, qualifying for BNPL loans requires little more than a soft credit check, and breaks a large expense into smaller, more affordable-looking installments.
BNPL loans have come under scrutiny from regulators. The Consumer Finance Protection Bureau (CFPB) says such plans may not fairly assess customer risk, do not provide enough consumer protections in disputes and may push more consumers further into debt.
However, the Trump Administration's light-touch approach to financial regulation, including its dismantling of the CFPB and mass firing of staff, has provided a tailwind to loan providers. In a May statement, the bureau said it would not focus on enforcement actions related to BNPL loans.
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