Sumamry

This article takes a quantitative look at the performance of the 408  IPOs placed on the UK markets between 2011 to 2019. The median return  of -10% is in line with academic studies which show typical losses of -8 to -23%.  Further analysis provides some actionable observations and compelling conclusions on trading and investing in IPOs.

  • Of those 408 companies  studied there were 178 gainers and 230 losers
  • The 178 gainers had a median return of 62% with 59 multibaggers making more than 100% and 28 more than 200%.
  • Of the 178 winners , 73 never made a low below their offer price and only 35 made price lows lower than 25% of their offering price.
  • The 230 losers had a median return of -59% with 135 dogs  losing over 50% and 47 with over -90% loses
  • 222 of the 408 made their price highs in Year 1 after the placing, with 70 in Year 2, 46 Year 3 and  31 in  Year 4. Only 10 of those 222 highs in Year 1  were below the IPO placing price, the rest were in-profit.
  • 241 made price highs greater than 50% of the issue price over the total duration.
  • Conversely 162 made lows in Year 1, 70 in Year 2 with 41 in Year 3.
  • 335 went on to make lows lower than the placing price over the total duration with 181 making lows lower than 50% of the placing price

These results are discussed and conclusions on trading and investing drawn.

Summary of IPO Study June 2019

Background

To IPO or not to IPO?  that is the question. Whether it is more profitable to risk the slings and arrows of a placing or to wait and see how the market receives it?  These days  I ignore the broker barrages of emails and don’t get carried away by FOMO… I prefer to give a placing some time  in the market before taking a position. Intuitively this feels right but I decided to go beyond heuristics and take a deeper look at the data. The results surprised me so I did a bit more digging before drawing any conclusions.

I’ve approached this study expecting that my own assumptions of taking positions in IPOs would be supported by the data: by in large, my perception was that most IPOs don’t do very well post launch. Added to my bias is the fact that I increasingly use historical price action to inform my trading and investing decisions, clearly IPOS don’t have that. Some time in the quoted markets is useful to get a handle on volume at price not to mention post launch shockers and the wholsesale offloading of  pre IPO shares.     I also have an aversion to prospectus documents with their Byzantine appendices and turgid, overlong bulk. Finally, there is a good body of academic publications which evidence that IPOs tend to underperform typically by -8 to -23% (1)

I’ve approached this study expecting that my own assumptions of taking positions in IPOs would be supported by the data: by in large, my perception was that most IPOs don’t do very well post launch. Added to my bias is the fact that I increasingly use historical price action to inform my trading and investing decisions, clearly IPOS don’t have that. Some time in the quoted markets is useful to get a handle on volume at price not to mention post launch shockers and the wholsesale offloading of  pre IPO shares.     I also have an aversion to prospectus documents with their Byzantine appendices and turgid, overlong bulk. Finally, there is a good body of academic publications which evidence that IPOs tend to underperform typically by -8 to -23% (1)