First day vs long-term performance of recent IPOs
There have been a total of 16 IPOs over the past 18 months, starting with RL Commercial REIT [RCR] in September of 2021, and ending with Alternergy [ALTER] which happened last Friday. There are many that will say that IPOs, especially those in the Philippines, are losers that shouldn’t be touched, and they’ll often tell jokes in the forums about dropping by after the opening bell to grab IPO stocks on fire-sale discounts. There are also many that, despite these warnings, invest in IPOs almost out of habit. Perhaps out of fear of missing out on one that pops hard, or perhaps because they just enjoy the feeling of being a part of a somewhat-exclusive process. So using those 15 IPOs over the past 18 months, let’s take a closer look at how they performed after their first day, and then again as of yesterday’s close. I’ve left LFM Properties [LPC] out of this analysis, because it was not a typical IPO that a person could purchase during an offer period, and its first-day trading is not subject to the same rules as the rest of the IPOs in the group because it was an IPO by way of introduction.
First-day performance: In the chart below, all of the IPOs have been sorted, in ascending order, by their first-day performance. As you’d likely guess, Medilines Distributors [MEDIC] takes the bouquet of flowers for giving us the worst IPO in the batch, which is also technically the worst-possible first-day performance allowable under the current rules for regular IPOs. The best-performing first-day in the group was AllDay Marts [ALLDY], which hit the ceiling on its first day. Out of the 15 IPOs, 20% “popped” (closing up over 10%), 40% were up (closing above 2% but below 10%), 26% were flat (closing above -2% but below 2%), 7% were down (closing below -2%), and 7% “pooped” (closing down over 10%; the opposite of popped).
First-day analysis: If you theoretically had been able to invest P10,000 into each of these IPOs, and then managed to sell each on the first day for the closing price indicated, then you’d have made P5,920 in profit (before trading fees and taxes) on P150,000 in initial investments. That’s about a 3.9% gross return. It’s beyond the scope of this fun chart to determine how easy it would have been to sell each stock for higher than its first-day close (many closed at prices that were lower than their intraday high), and it’s also beyond the scope for us to consider how easy or difficult it would be to actually sell the stocks for that end-of-day price.
Long-term performance: The chart below is the same one used above, except this time, the first-day performance (blue) is matched up against each IPO’s performance to yesterday’s closing price (red). It’s plain to see that the longer time frame was not kind to stock performance. Could the story have been different if so many of the REITs weren’t blind-sided by inflation? Perhaps, but these are not events that we can just delete from the record, and so we should take the market as it is. MEDIC remains as the worst-performing IPO, down 73% from its IPO price, but MEDIC’s lead is hardly as pronounced in this dataset. Out of the 15 IPOs, 80% are in losing positions relative to their IPO offer prices. In fact, only 12.5% of IPOs are in positive positions: just SP New Energy [SPNEC] (+69%) and Figaro [FCG] (+31%). Out of the 15 IPOs, 13% popped, none were just “up”, 20% were flat, 13% were just “down”, and 54% pooped.
Long-term analysis: If we again imagine that our hypothetical IPO buyer spent P10,000 on each IPO and held each purchase until today, then that hypothetical trader’s “held to present day” portfolio value would have gone from P150,000 down to P132,000, a drop of 12%. That number is before transaction fees and taxes, and excludes the positive cash-flow of dividends and other rights that may have come with stock ownership (like SPNEC’s SRO). So many of those stocks that were in the first-day marginal gains category became pooped and migrated down into the substantial losses category. The two biggest changes were SPNEC, going from flat to 68% up, and ALLDY, which went from 50% up to 59% down.
Ok, but what if...: The easy response to this is to say something along the lines of, “I’d never have put any money in MEDIC, or anything Villar for that matter,” and so it’s maybe instructive to slice up the data a little further to see what would happen if the theoretical trader made some choices instead of just buying everything that came to market. There are so many different ways to cut these IPOs up into groups, but here are the ones that I went with just for a little fun analysis: 
What if... analysis: So with the benchmark of +3.6 first-day performance for all IPOs, and -11.9% performance long-term for all IPOs, let’s take a look at how the rest stack up. Renewables have been the clear winner, both in the short-term (+3.3%) and long-term (+11%) (I didn’t count PREIT as a renewable, because it doesn’t have any renewable assets of any kind), as Renewables was the only group that has had long-term success. Pretty much all the fun segments that I made performed alright on the first day, except for the “No Stab Fund” group, which (predictably?) was the only group that ended the short-term in the negative (-3.0%). Interestingly, the No Stab Fund group was also the third-worst performing group over the long-term (-12.3%). Thanks to ALLDY, the All Villar group tied with All Stab Fund for best short-term performance (+6.5%), but... also thanks to ALLDY, the All Villar group was by-far the worst long-term performer (-35.3%).
MB BOTTOM-LINE
Generally, investing in IPOs was a marginally-positive thing if you sold at the end of the first day, and a fairly disastrous thing if you held everything that you bought without making any changes.
And while it’s true that a lot has happened over the past 18 months that might have affected some of the IPOs and not others (COVID, inflation, changing listing rules, etc), I think this kind of surface-level analysis shows that a deeper analysis of each IPO as a unique event is probably closer to the path of success.
Choosing to make no choices has been a terrible choice.
Will it continue to be this way? Will buying everything without concern for the quality of the company, the pedigree of the ownership group, or the make-up of the deal continue to be a trash-tier strategy going forward?
I mean, probably, but if I do this again next year after a huge bull market or some other large change that floated all IPO boats, maybe not? I think the best take-away from this is to realize that not all IPOs are created equal.
Each one presents a different bouquet of short-term and long-term risks and rewards, and each one should meet some elevated set of criteria (above just being available to buy) to justify your investment! Make them earn it!
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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