The difference an industry can make
Early IPO performance influenced by sector, industry, sentiment
With most established listed companies, there is something of a consensus on value. This is because the company has traded publicly, and much of their recent commercial history is public information as well. Their revenues and profits may also be quite mature and easy to predict, and the value of future cash flows is therefore easier to determine.
With new listings on the ASX, there is less of a consensus on the relative value of a firm. As such, once the firm starts trading, we can see large movements either way as traders and investors reach an early equilibrium price.
However, these initial moves are not necessarily a reflection of the future cash flow prospects of the business. Rather, they reflect the immediate sentiment and the industry in which they operate.
In fact, the industry and sector of a new ASX listed issue appears to be one of the deciding factors in the early performance of the share price. The more ‘in vogue’ the sector, the better the performance.
IPOs by sector
In the first half of 2017, the medicinal cannabis sector was perhaps the most fashionable sector, with four of the top ten performing IPOs of 1H2017 having links to the sector; perhaps indicating the positive sentiment and bullish view on the sector from investors.
The weakest performing sectors for 2017 IPOs included the telecommunications and real estate sectors, which is perhaps also indicative of the sentiment investors have for these sectors.
Of course, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated.
There is an admittedly small sample size for IPOs in these sectors this year, but those that have listed have perhaps been influenced by the recent weakness of Telstra (our largest listed telecom), and the growing belief that our property market may be peaking.
It’s about the long term
These is a quote from a very famous historic investor: “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” So while popular firms and sectors may do incredibly well in early trade, this isn’t necessarily a reflection of the long term prospects and valuation of the business.
Indeed, the longer term performance of any business is less down to the near-term sentiment and popularity of the business, and more down to their ability to generate revenues, manage costs, and deliver profits.
Short-term positions in small, early stage ASX companies,
with high potential and near term price catalysts.
Focusing on resource exploration, early-stage tech, and biotech.
Exceptional opportunities across a broad range of
early-stage growth sectors with strong management.
Seeking 1,000% plus returns across medium to long-term holds.
Longer-term positions in a variety of sectors.
Seeking strong management where traction is established and have entered into a growth phase.
S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.
Conflict of Interest Notice
S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.
The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.