Be strategic about buying IPOs

Just like established players, newly public companies need strong fundamentals to fit in with your portfolio.

Bryan Borzykowski 22 March, 2017 | 5:00PM
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2016 was one of the worst years for initial public offerings (IPOs) in Canada. Only clothing company Aritzia (ATZ) listed on the Toronto Stock Exchange, and it's down about 15% since it went public. 2017 promises to be somewhat more exciting, with popular salad bar chain Freshii (FRII) listing in February; winter coat maker Canada Goose (GOOS) going public last week; and other companies, such as Hootsuite, Vision Critical and D2L, expected to follow. In the United States, which also had a slow 2016, social media company  Snap (SNAP) raised US$3.4 billion on March 2, becoming the largest American IPO since 2014.

This renewed activity has many investors chomping at the bit; newly listed companies mean new opportunities for stock pickers and fund managers. However, buying a fresh-to-market operation isn't the same as purchasing an already established business. It's risky, it's uncertain, and it's easy to get caught up in the IPO hype. Remember that  Facebook (FB) went from US$38 to US$18 in four months following its May 2012 listing, and only returned to its IPO price 18 months later. While it's now trading at US$139, its social media counterpart  Twitter (TWTR) still hasn't recovered, having declined 63% since listing in November 2013.

How should investors treat IPOs? With an open mind and an abundance of caution, says Jeff Mo, a portfolio manager with Mawer Investment Management and lead manager of Mawer New Canada. An IPO can be good and bad for investors, he says. "It introduces investors to a new company, but there's always an inherent level of risk you're assuming given the limited financial history disclosure you're getting."

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Aritzia Inc36.21 CAD-0.36
Canada Goose Holdings Inc50.30 CAD-0.12
Facebook Inc A340.59 USD0.46Rating
Freshii Inc A2.05 CAD-0.97
Snap Inc Class A66.35 USD5.43Rating
Twitter Inc66.49 USD4.25Rating

About Author

Bryan Borzykowski

Bryan Borzykowski  Bryan Borzykowski is a Toronto-based business and investments writer. He’s contributed to the New York Times, CNBC, BBC Capital, CNNMoney and several other publications. Bryan’s also written three personal finance books and appears regularly on CTV News.

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