What are we looking for?
Last year was a very strong one for initial public offerings. After the frenzy, I wanted to dive a bit deeper and get an idea of how these companies have done since being listed on the market.
The screen
To obtain a comprehensive list, I used our Deal Screener to pull every IPO in the United States and Canada in 2015. After excluding smaller deals and "blank-cheque" companies, development stage firms with no specific business plans, there were 139 companies remaining. With financial data being somewhat limited, I've highlighted some of the more well-known companies that went public last year along with some observations.
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What did we find?
There were 13 IPOs from five industries in Canada last year, of which only three are currently above their initial offering price. Hydro One Ltd., the electricity transmission and distribution utility company formerly wholly owned by the province of Ontario, is the largest company by market cap to have gone public in the United States and Canada in 2015. The company plans on paying a quarterly dividend of about 21 cents, yielding nearly 4 per cent based on today's price and is up 3 per cent since its listing. TMAC Resources, a gold company with a large deposit in Nunavut, is the only mining IPO in Canada and the United States in 2015. Since its listing date, the firm has outperformed the S&P/TSX gold index by 24 per cent.
Out of the 126 U.S. IPOs on my screen, about 20 per cent are trading above listing price. The popular names such as Fitbit, Shake Shack, Etsy, Box and DavidsTea are each down between 30 per cent and 77 per cent since listing.
The average return for Canadian IPOs last year was minus 15 per cent, which actually beats the average return of U.S. IPOs at minus 26.5 per cent. In pricing IPOs, bankers work hard to raise as much as money as they can while selling a positive story with revenue growth projections. Something to remember when considering the purchase of a hot IPO: It's Probably Overpriced.
Investors are advised to do their own research before investing in any of the stocks shown here.
Charles Martin, CFA, works in the financial and risk unit of Thomson Reuters and specializes in asset management.