Investing in companies that make their IPO? Yes, it can pay off. But first he must do his job as an investor.

The entry of a firm on the Exchange market is always an event a bit special. Take Tim Hortons. Issued last year to $ 27, its shares closed at their first session $ 33. That day, everyone wanted the Tim Hortons, and we’re not talking donuts.

The market for IPOs (initial public offering), or in English IPO (Initial Public Offering) is very attractive. Investors dream of finding the next Microsoft or Google and increase their investment tenfold in recent years.


These days, it seems that the “next Microsoft” is in the area of solar energy. It is not uncommon to see actions to triple in just one year in this sector. Given the rising oil prices and global warming that made ​​headlines, the timing is right. But this does not apply to all companies who do their IPO.

One can obtain significant gains with the newly introduced stock market values, provided one knows to this market at least singular.

Throughout the history of Canadian and U.S. exchanges, it was observed that the newly listed shares on a floor offer spectacular performance (15% on average) during their first three trading days. But few serious investors are content to speculate on this phenomenon.

For we made ​​a good investment over the longer term, the issue of shares must not only serve to enrich the initial shareholders or the debts of society. The funds collected shall be used for business growth.

It is best to bet on companies that have been at least ten years, and that show a steady growth in profits and sales. The company size is another important factor, and the prudent investor will favor companies with market capitalizations of at least $ 100 million.

Share issues are the most profitable ones are controlled by large financial institutions, which are followed by at least three analysts at brokerage firms, which have large purchasers from mutual funds and other pension funds .

Finally, firms backed by venture capital investors prior to their public offering in five years, generating a yield two times higher than those who have not benefited from this type of private financing.

The celebration surrounding the most IPOs is unfortunately very short. If the first year of negotiating a new public company can realize significant gains in the longer term, the party’s nightmare.

The performance of Canadian IPOs is 20% lower than that of a comparable market index over the next three years. After five years, the loss amounted to 27% from its comparable. Only 15% of small Quebec businesses that have made ​​new share issues have beaten the Canadian market over a period of ten years. Domestically, new issues in the mining, gas, oil and high-tech display yields significantly lower than those observed in other sectors.

Jay Ritter, finance professor at the University of Illinois, showed that over a period of five years, the IPOs in the U.S. have a dividend yield 35% lower than a comparable index . Yields the most negative about a three to five years, says Jay Ritter, from issues of shares made ​​during periods of market euphoria, as was the case in the late 1990s.

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