Over the years I have often been asked by clients about the possibility of getting into a US Initial Public Offering (IPO), ahead of a company going public. It’s usually because there’s a lot of press surrounding this event; coupled with the feeling that if you get in at the “new issue price” (before it starts trading), you’re bound to make a lot of money that first day or two, because the stock price (supposedly) will soar.

As Canadian investors, we almost always do not have access to US IPO’s. But more importantly, there are far too many unknown factors that prevent us from making an informed decision as to whether the company is a solid investment – i.e. how can we possibly know that the new issue price is truly reflective of the real value of that business?

My point is highlighted in what happened with UBER’s first trading day - Friday May 10th and then again on Monday the 13th. They debuted at $45USD per share (new issue price). Not only did the share price not rise, it plummeted to a low of $36.08 USD by Monday the 13th. Granted, the US market had been volatile as of late due to US/China relations, but the way I see it, UBER doesn’t factor into that dynamic.

I am not saying that we won’t own companies that have IPO’d in the last year or even 6 months, but it’s incumbent upon me to advise clients to tread lightly and wait until we’ve gathered the necessary financial details and research, so that an educated choice is made and not one based on emotion.

Please touch base if you have any questions at all.

 

 

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