In the space of just four months, three newly-listed companies which all undertook initial public offerings (IPOs) have experienced dramatic share price falls.
High profile Sydney-based real estate agency McGrath Ltd (ASX: MEA) shares have fallen around 25% since first trading on the ASX in early December.
Meanwhile, shareholders who acquired stock in online furniture and homewares retailer Temple & Webster Group Ltd (ASX: TPW) on the opening day of trade are nursing losses approaching 70%!
Rounding out this group of recent listings is agribusiness Wellard Ltd (ASX: WLD). Its share price has tumbled close to 50%.
What can investors learn from these IPOs?
These dramatic share price declines are a reminder that investing in an IPO does not guarantee a profit.
In fact, IPOs in many ways carry more risks than investing in already listed companies.
There are multiple reasons for this heightened risk including the market timing of sellers, the motivation for a deal by investment bankers, and a lack of operational information being provided to potential acquirers.
The float of McGrath is arguably a typical scenario where the timing of the float would appear to have coincided with the top of the property market cycle.
Meanwhile, the floats of both Temple & Webster and Wellard would appear to have carried the risk of less informed buyers purchasing shares from well-informed sellers.
Of course it's not just individual investors with less access to management and private briefings who have come off poorly from these three floats. Plenty of professional fund managers with teams of analysts behind them also backed these IPOs and are nursing significant losses too.
