Portfolio Manager Colin Stewart said it’s a bit of a “head scratcher” that so many Canadian companies who have made their public market debuts this year have been “flops,” but thinks even more selling pressure could lead to some buying opportunities.
“There are a number of names that are well known to investors that have performed really poorly,” said Stewart, chief executive officer and portfolio manager at JC Clark Limited. “It brings to question the accuracy and pricing of some of these IPOs when they’re priced by the investment banks.”
“We saw in many cases, very strong demand out of the gate, but as soon as those stocks started to go down, the same investors that were buying them at one price wanted to sell them at 20 per cent lower.”
Stewart said JC Clark has been doing research into nascent public companies, including Kits Eye Care Ltd., which is down 72 per cent since its initial public offering in January; Farmers Edge Inc., down 82 per cent from its debut in March; as well as Dialogue Health Technologies Inc. which also began trading on the Toronto Stock Exchange in late March, but has seen its share price fall more than 40 per cent.
As a result of tax-loss selling, Stewart said these downtrodden stocks could fall even lower as the trading year winds down.
If this happens, Stewart said his firm may look into purchasing some of these names, but said investors, particularly retail investors, had better exercise caution.
“I think it's incumbent on retail investors, and institutional investors, to do their homework, do their due diligence, look at the fundamentals and decide ‘is this a good business, or is this not,’ and base less of it on is this a hot IPO market,” said Stewart.
“There often is in this hot market, particularly with technology-oriented IPOs, or healthcare, huge increases in the first day. I think that obviously suggests the banks have underpriced the IPO.”
When playing the IPO market, Stewart added what he looks for is “good, solid businesses” that are priced correctly and are attracting long-term investors, and not just the “fast money.