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Why you aren’t offered shares in a hot IPO.

If you want to invest in IPOs, I have some tips that may help.

Gordon Pape on hot IPOs.By Gordon Pape, Editor and Publisher

This month a company that few of us had ever heard of made a lot of people very rich, very quickly.

Beyond Meat (BYND), which is based near Los Angeles, went public on May 2 when it raised $240 million (figures in U.S. dollars unless otherwise noted) in its initial public offering on Nasdaq.

The stock came out at $25 and shot as high as $72.95 on the first day of trading before settling at $65.75. It has continued to move higher and was trading at $86 leading up to the Victoria Day weekend. Here’s the price now:

That means anyone lucky enough to get shares at the IPO price was sitting on a profit of over 225 per cent in a matter of weeks. You probably aren’t part of that elite group.

That’s because Canadians never had a chance to buy shares at the opening price.

That’s the case with almost all the big IPOs that you hear about. If they’re listed on U.S. exchanges, we never have a chance to buy in.

When a company goes public, the deal is handled by a team of underwriters. In this case they were Goldman Sachs, J.P. Morgan, Credit Suisse, BofA Merrill Lynch, William Blair, and Jeffries.

These companies handle the distribution and sale of the shares, allocating (or, in the case of hot issues like this one, rationing) them among a select group of brokers. Top advisors are provided with a limited number of shares, which would be typically sold to their highest net worth clients. In short, if you’re not a wealthy American working with a leading broker at one of the underwriting firms, you’ll be on the outside looking in.

Your only option is to wait until the shares start trading publicly and buy then.

That’s what happened with Beyond Meat. The IPO was relatively small, at 9.625 million shares. Yet more than 23 million shares changed hands on the first day, more than double the actual number issued. The action slowed somewhat on the second day, with just over 13 million shares traded, but that was still higher than the total number outstanding. Talk about market frenzy!

And all this for a company that is showing strong revenue growth, but which is a long way from making a profit. Losses in the past three years total $85.4 million.

“We have a history of losses, and we may be unable to achieve or sustain profitability,” the company warned in its prospectus.

But profits don’t seem to matter much these days, at least at the outset.

All a company needs is a good story and a history of rapidly increasing revenues.

That’s what Beyond Meat had to offer. It makes simulated meat products out of plant materials such as peas and fava beans, and according to reviews they taste really good. Its flagship products is The Beyond Burger, which it says is the world’s first 100% plant-based burger merchandised in the meat cases of grocery stores. It’s designed to look, cook, and taste like traditional ground beef although some reviews I read say it tastes more like chicken.

Their products are selling as fast as they can produce them. The company report net revenue of $16.2 million in 2016. Two years later, in 2018, revenue was $87.9 million. That represented a 133 per cent compound annual growth rate. Investors are betting that is going to continue.

But all IPOs are not blockbusters.

Some turn out to be duds.

For example, on the day after the Beyond Meat launch, Yunji Inc., a leading social e-commerce platform in China, began trading on Nasdaq at $13.50. It started out fine, closing the first day at $14.15 but has drifted down since then and was trading below the IPO price at the time of writing. The same day, ATIF Holdings, which provides financial consulting services to small and medium sized companies in Asia, went public by issuing four million shares at $5. The stock finished the day down a nickel and the shares have continued to drift lower since.

Although most of the big-name IPOs are in the States, we do have some in this country that have made investors a lot of money. For example, a Montreal-based tech company named Lightspeed POS went public in March at C$16 per share. It didn’t elicit the excitement of Beyond Meat, but its share rose to a respectable C$18.90 on the first day and the stock is currently trading at around C$24.

Most cannabis IPOs in recent years have also been winners, but not all. CannTrust Holdings, which went public about a year ago at C$8.50 fell as low as C$5.94 in December and is currently trading below the IPO level.

If you want to invest in IPOs, here is how I suggest you proceed:

Do your research

Stay on top of business news, paying special attention to reports of new Canadian IPOs in the pipeline. If you find one that interests you, do some research. If a prospectus has been published, check it out at It may be a tough slog to read through it, but it will provide a lot of valuable information.

Contact your broker

You should alert your broker in advance that you are interested in IPOs. Once you’ve identified a specific company of interest, contact him/her and ask if they will receive an allocation or can get one. If so, place an advance order for the number of shares you want.

Watch the stock

Unless you plan to hold long-term, set a target selling price. After the issue comes out, keep a close eye on it – I suggest checking it hourly on the first day. If it reaches your target, take your profit and exit with a quick gain. Conversely, if it falls 25 per cent below the issue price in a short time, bail out. It’s a signal that the shares were grossly overpriced to begin with.

This article was originally published in The Toronto Star.

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