Monday, May 18, 2009

You want the other side of this trade?

Some interesting comments on recent and upcoming IPO's - more insider selling than the norm.

"Another feature of the current IPO market: it’s been a lot more accommodating for the insiders and the underwriters than for the longer-term investors. According to Renaissance Capital one feature that’s distinguished the current crop of IPOs: a heavy dose of insider selling. Four of the five IPOs that launched this year had direct sales by insiders, high by historic measures. As much as two-thirds of the stock offered in those new issues came out of the hands of those insiders, another high reading. Historically, new issues populated by shares that insiders are unloading on the market have been greeted skeptically, inasmuch as they suggested that the folks who know the business best didn’t have much faith in the company’s short-term prospects. That may not be the case with the current crop of new issues, Renaissance said. Because the market has been so penurous, the companies that have been able to raise money in the IPO market have typically been relatively mature operations - both SolarWinds and OpenTable have been around for a decade - suggesting there’s pent-up demand for a liquidity event on the part of those insiders. Still, the performance of the new issues has suggested that it’s better to get out of debuts sooner rather than later: the five IPOs that priced this year saw an average jump of 21% in the first day of trading, according to Renaissance. But of the four priced this quarter, has been a clear hit - up 85% from its IPO price - Rosetta Stone has delivered a nice return, ahead 32%. DigitalGlobe has risen 8% since pricing last week, but is down a buck from its first-day closing. Shares of Bridgepoint have declined 3% from its IPO price."

AlphaNinja - The purpose of IPO's has always been to offer "liquidity" to investors, employees, and management. The people with the most intimate knowledge (management, early venture money, employees) about the company have chosen a certain time and price to sell to you, the new investor. For those reasons, I've always been skeptical of investing in recent IPO's.

Below are a few IPO's from recent years. They actually haven't underperformed the market all that much., thanks to triple-digit percentage moves off the March lows.

Then again, I skipped on this one and was certainly proved wrong...........

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