IPO Summary - Guide to Picking Winning IPOs

Despite a see-sawing, slow market, we are seeing many new IPOs for the year 2012.

Experts said prospects of higher liquidity and increased risk appetite have boosted confidence in IPOs.
Some examples include Furniture retail store operator Courts Asia, Indonesia's Geo Energy Resources... Religare Health Trust... And soon, 2 new IPOs, namely: Gaylin Holdings LimitedDynasty Reit.

If you take a look at Shareinvestor IPO website, you can see that the closing dates are nearing for the last 2 IPOs so you have to hurry if you want to apply for them!

Anyway back to the main topic for today's post... So how well are the IPOs doing so far?


IPO Performance Summary

As you can see from the chart, there are quite an equal number of winners or losers in the list of 25 IPOs.
Many people want to know the secrets to Winning IPOs so here are my insights:

1) Market Sentiment/Feel for the IPO
If you look at the list on top, Courts are a no-no in the forums (check out hardwarezone, sharejunction, shareinvestor forums). It's because they are listed before and many people lost money with it.
The immediate thought that goes to people minds is "Want to bluff my money again? No way!"

Secondly, if the company is listing at a time when major stock indexes are all falling, then no matter how good it is, people are still afraid to commit too much money too!

In the end, it boils down to understanding the psychology or "feel" of fellow investors...

2. Proposed usage of funds raised from IPO
Stay away from IPOs where they are using bulk of the funds raised to repay debt (e.g. bank borrowings). In such instances, the company is typically improving their financial position (rather than looking at your welfare)

My own investment strategy is to look at both value + growth.
If there is no growth involved, there are many more other IPOs that i can choose from. 

3. Past financial performance
When you look at the list, you are able to differentiate the winners into 2 groups:
(i) Consistent growing Sales + Profits: people look at these IPOs for growth and capital gains in the future
(ii) Trusts + Reits: Owning these will translate to stable dividend yields supported by good financial performance. (my dad usually diversified his portfolio by applying for such IPOs while fulfilling his desire to tikam tikam... lol)

4. Management team
Such information may be hard to access... but you can try media interviews, as well as press conferences when the management teams announce the launch of their IPO, etc.

Another important source is the prospectus. Review the ROE (Return over Equity) ratio - it measures a firm's efficiency in generating $$ using the equity (capital) they have.

5. PE ratio (a valuation shortcut)
PE ratio is derived by dividing the price of the IPO by the latest earnings figure
E.g. if PE ratio is 10, you are paying 10 times the price for $1 earnings. Alternatively, it also means it will take 10 years before the price you paid for is equal to the earnings made by the company (assuming earnings stay constant)

A high PE ratio (over-valued) will tend to scare investors away.. so a good guage refers to anything 10 and below...

That's all i have for you... feel free to share your opinions below and everyone (including me) can learn from it :D

Hope you like my post and can do me a favour by "Like"-ing my facebook page at www.facebook.com/kissinvesting. Thanks & HUAT AH!

1 comment:

  1. I have never been a great fan of IPO'S. that does not mean that its not possible to pick out the winners from the losers. Most companies go public to raise money that should tell you something.