News und Studien cometis AG, Frankfurt am Main

First trading day does not allow a glimpse into the future

  • Half of the share prices later tend in the opposite direction to the IPO day
  • Delivering and communicating is decisive for long-term success

Wiesbaden, March 19, 2019 – If a share is traded on the stock exchange for the first time, the price performance of the first day (IPO day) does not provide any indication of future performance. In about half of the IPOs, prices later developed in the opposite direction to the trend of the first trading day. This is the result of a study by cometis AG. Henryk Deter, CEO of cometis, states: “The jump from the starting block is not decisive for the long-term performance of a company. Too much attention is paid to the price development on the first trading day”. In their study, the consultants examined the prices of 40 new issues on the German stock market since January 2014 over a period of two years after their IPO.

Half of the prices later tend in the opposite direction to the IPO day
Over the next two years, the share prices of 20 companies developed against the trend of the first trading day. In the case of 13 companies whose closing price at the time of the premiere was higher than the issue price, the following two years saw some significant price losses. On the other hand, 7 companies were able to record partly significant price gains in the subsequent period, contrary to the unfavorable price trend of the first trading day. “Price gains on the first day of trading should not lead to euphoria, nor should price losses on the first day of trading justify breaking the mold over a company,” said Deter.
In the case of 21 shares, the trend of the first trading day continued in the following two years. Of these, 14 companies showed a further rise – just like on day one. At the same time, 7 companies, whose closing price on the first trading day was already below the issue price, also revealed a sustained price weakness in the following two years.

IPO dayPrice development on the IPO day and in the following 2 years rectifiedPrice development on the IPO day and in the following 2 years counter-directed
Closing price > Issue price1413
Closing price < Issue price77
Total2120

Delivering and communicating is decisive for long-term success
The success of an IPO is also not determined by the price development on the first trading day, but is determined before the start of trading. This is because the shares are already placed with the new investors before the first price even appears on the display board. Deter: “The decisive factor is that the companies internalize their self-image as a “public company”. To do this, they must not only deliver the results announced before the IPO, but also communicate continuously and professionally with the capital market.

Performance broadly diversified
In the two years following the IPO, Covestro recorded the best performance with an increase of 198%. The chemical company’s stock was already up 10 percent on IOP day, and after two years of capitalization of around 13 billion euros, it developed into a real heavyweight. The Siltronic share ranks second. The manufacturer of wafers for the semiconductor industry achieved a market capitalization of over 2 billion euros within two years with an increase of 174 percent. The Brain share came in third. With a plus of 171 percent within two years, the biotechnology company achieved a market capitalization of around 400 million euros and is a boxer in a medium weight class.

On the other hand, the shareholders of some light-weight new issues largely lost their investment. Anyone who acquired shares in the Chinese textile producer Tintbright on January 27, 2014 suffered a total loss. Two years later, the shares were no longer listed on the stock exchange. The Management Board and Supervisory Board have disappeared and the company is no longer reachable by post.

Shareholders who acquired the shares of the clothing manufacturer Steilmann on November 5, 2015 also lost almost their entire capital with a loss of 99 percent. Shareholders of the Chinese automotive supplier JJ Auto also had to cope with a depreciation in value of 99 percent. Although the closing price of JJ Auto shares on the first day of trading was still 6 percent above the initial issue price, prices soon fell and continued to plummet after one year.

+ IPOs with the best performance after 2 years (excluding dividends) +
SecurityDate of IssuePerformance
Covestro6 October 2015198%
Siltronic11 June 2015174%
Brain9 February 2016171%
– IPOs with the worst performance after 2 years (excluding dividends) –
SecurityDate of IssuePerformance
Tintbright27 January 2014– 100 %
Steilmann5 November 2015– 99 %
JJ Auto16 June 2016– 99 %

To the study
All in all, cometis analysts examined the price performance (excluding dividends) of 48 new issues. Between January 2014 and March 2017, the companies entered the German trading floor for the first time. Correspondingly, 40 companies had consistent price data available. The remaining companies disappeared from the price board during the observation period following the IPO as a result of takeovers or mergers.

Michael Diegelmann

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Michael Diegelmann
Henryk_Deter

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