17,9%. That much on average, according to statistics, shares rise in price on the first day after the IPO. If you translate this into annual, the number will not fit on the calculator screen. Buying shares at the IPO can bring big profits. But there are a few subtleties., you need to know about. They will help to calibrate expectations for profitability, more accurately assess the risks and form a competent investment strategy.
What you need to know about IPOs
The popularity of investments in Russia is growing. Interest in the stock market is fueled by low deposit rates and stories about fabulous profits. Participation in the IPO is especially savored (initial public offering), or initial placements. The essence is simple. Private company sells shares on the open market to everyone. Shares begin to be traded on the stock exchange, they have a market price, some shareholders appear on the Forbes list.
To participate in the IPO, you need to apply. To do this, you need to open an account with a broker and replenish it. It is advisable to put more money. Then you wait for day X, get a certain number of shares at the placement price and then do what you want with them: hold or resell.
For the last 40 more years have passed 8 500 Locations, that is, approximately by 200 in year. Decent number, which allows you to grab for each placement and choose the most promising.
Study the issuer
so, you have decided to participate in the IPO. First, what should be done, — read the prospectus. In the U.S., it's a form of S-1 with a volume greater than 200 pages. There is a detailed description of the company, its financial results, management comments on risks, what promotions and how much is offered for sale and much more. Based on this data, you can estimate, how much should the company be worth and how does it relate to the price, according to which you are offered to buy.
Most clients don't read anything and rely on analyst advice or seasoned advice.. But in vain. Companies sometimes honestly warn about the risks.
For example, GoPro's 2014 year black and white warned, that the moment may come, when she sells her cameras to everyone (not too numerous) and then revenue will not grow. And so it happened.. As a result, the stock first rose in 3 Times, and then fell in price in 10 once, where the last six years have been.
Estimate profitability
Suppose, you have found a promising company. Of course, not only are you the only one aware of its bright future, therefore, there will be many more people who want to become its shareholders., than shares, offered for sale. Get ready for that, that during the placement you will get much less shares, than you want, or won't get at all.
According to statistics, institutional investors (funds) get 90% Shares, retail (private investors) — 10%. Put yourself in the shoes of companies. Would you like to, so that small investors buy shares, who will run to sell them tomorrow? That's why, by placing a request for 100 thousand. dollars and receiving shares on 5 thousand. Dollars, you can consider this a good result. This is called "allocation.".
Allocation immediately makes adjustments to profitability. If stock grew on the first day 30%, you have left a request for 100 thousand. Dollars, and bought only on 5 thousand. Dollars, then you have earned 1,5 thousand. Dollars. That is, the return on invested capital was 1,5%. Maybe, worth buying on 100 thousand. Dollars microsoft paper, which after the release of quarterly reports jumped to 4%? That would be less risky.. Shares of the software giant after reporting grew into 66% cases.
Among companies, entering the market for the first time, only 53% on the first day of trading show growth. But if they grow, then the percentage is much more, what weak stocks fall. Hence the conclusion: to increase the chances of success during the IPO you need to participate in a large number of placements.
Choose a tactic
According to statistics, companies on average in the tenth year of their life go public. By this time, there is already a solid volume of sales., many are profitable. Nevertheless, on the first day of trading, shares of profitable firms at the time of placement grow by an average of 13%, and unprofitable — on 25,6%. A vivid confirmation of this, what stock market живет ожиданиями. But nature cannot be deceived.
After three years, unprofitable companies show an average increase in quotations only by 7,8%, profitable — 35%. AND, Alas, after three years of promotions almost 2/3 companies show a result worse than the index. But they, that are growing, double or triple in price. The same picture with the volume of sales (Proceeds).
Output: if you are going to quickly sell shares after the IPO, it is better to focus on companies with revenues of 20-100 million dollars, not yet profitable. If you invest for a long time, the odds are higher with companies with revenues over 100 million dollars.
And one more important point. For certain categories of investors (company insiders, funds, banks) almost always a deadline is set after the IPO, during which they cannot sell shares, — lock-up period, it lasts for several months. This does not apply to retail small investors., but often the scheme of their participation in the IPO involves lock-up. This is an additional risk., because stocks may fall in price, how, for example, Rivian or Robinhood.
It's worth considering other tactics: buy shares on the first day of trading and try to fix profits for a short period of time, until the hype regarding the paper has cooled down.
Otherwise, a simple rule from life works for successful participation in the IPO.: if you do something yourself, you will have to spend a lot of time. Don't want to waste time? Get ready to pay the professionals generously.
author: Максим Шеин, Chief Investment Strategist at BCS World of Investments
A source: Banki.ru
