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Investors warned to not rush into newly-floated companies

Friday 3rd February 2012

There is considerable hype building around the Facebook IPO - making it the most anticipated floatation in the technology sector since Google.

But here, Sheridan Admans, investment research manager at The Share Centre, warns investors of the risks of investing in a newly-floated company...

"As of 30 December 2011, 59% of all US IPOs that launched in 2011 had suffered a decline in share price.

"With a high level of volatility in the markets it is difficult to anticipate how the stocks will fare and what the future holds for the newly-floated companies. It is important to look at the reasons for floating and the company's future plans for growth.

"We believe it is beneficial to the investor to wait until the stock has been in the public focus for some time and monitor share price activity, as hype tends to detract from valuation. It is often too early to make a judgement on the initial activity of a stock and there are normally other plays within the sectors with a proven track record.

"However, some investors may look to LinkedIn, as a comparison of a recently floated social network. LinkedIn floated at $45 per share in May 2011 and at close of market yesterday the share price was $72.37 per share - an increase of over 60%.

"Those investors still wanting to take the plunge should do so with caution and be aware of the risks of investing in the unknown and the exchange rate risks when investing overseas."

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Mike Jones

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